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Falling oil prices affect Kuwait's economy

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Staff writer ▼ | December 7, 2015
The falling oil prices will have an adverse effect on Kuwait’s fiscal and current account results and economic growth this year.
Kuwait oil
Growth   Kuwait non-oil GGDP is so slow down in 2015 and 2016
A report from the International Monetary Fund (IMF) claims the government has eased its fiscal adjustment measures in response to the cheap oil and will continue supporting growth through sizable investment spending.

The IMF believes Kuwait’s real non-oil Gross Domestic Product (GDP) will slow down in 2015 and 2016, and then pick up to 4% in the medium term, supported by government investment in infrastructure and private investments. Inflation is expected to be 3.4% in 2015 and remain stable in the medium term.

The Fund believes Kuwait’s fiscal and external positions will deteriorate this year and in the next, but improve in the midterm, once oil prices show some recovery.

According to the IMF, the oil price decline has increased the urgency for the country to diversify its economy and create high-productivity jobs.

“It’s a priority to reduce the dual dependency on oil revenue and expatriate workers”, says the report.

However, the Fund highlights the government’s effort to contain current expenditure and prioritize capital expenditure to pursue policies aimed towards increasing the role of private sector investment and job creation for nationals.

IMF’s staff team underscores the need for the country’s budget consolidation with more non-oil revenues, among other suggestions, and expresses its support to the authorities’ planning of introducing a value-added tax and a business profits tax. The organization also advises to combine domestic and external financing sources to maintain capital spending.

The IMF praised Kuwait’s financial system, with a pegged exchange rate regime favoring monetary stability, and encouraged the central bank to further strengthen financial sector stability.

The organization emphasized the country’s progress in upgrading its regime against money laundering and the financing of terrorism, also praising efforts to improve the quality and availability of key economic statistics.