Investment in infrastructure will support non-oil growth in the medium term, IMF report says
ANKARA – Low oil prices have created challenges for the Kuwaiti economy, said an International Monetary Fund report released on Wednesday.
“The decline in oil prices has adversely affected Kuwait’s fiscal and current account balances and slowed growth in 2014–15,” the report said.
While Kuwait has substantial reserves and financial buffers – estimated at about 320 percent of GDP at the end of 2014 – to face these challenges, the country needs to adjust spending while continuing to diversify the economy to create jobs for the growing young national population, the report said.
“Real non-oil GDP growth is projected to slow in 2015 and 2016 on account of slower consumption and private investment activity, and to pick up to 3.5-4 percent in the medium term, supported by government investment in infrastructure and private investment,” the report said.
Oil production declined by 1.9 percent and 1.4 percent, respectively in 2014 and 2015, due partly to the closure of a neutral zone oilfield in the latter half of 2014 and a temporary suspension of operations in a few fields for technical reasons in May this year, according to the report.
This has reduced overall real GDP growth to around zero in 2014–15. Average inflation increased slightly to 3 percent in 2014, and edged up to 3.8 percent in August 2015, driven mainly by housing rents, the report said.
“Investment in infrastructure projects will support non-oil growth in the medium term. A number of contracts have been awarded since 2014 in the oil sectors to upgrade fuel and to increase refining capacity, and implementation is already underway in several key projects including in the power generation and health sectors. High government buffers, a strong and liquid banking system, and a profitable corporate sector, provide the enabling environment for growth,” the IMF said.
Execution of the country’s economic development plan, paired with structural reforms, will implement the move to diversify the economy, the report said.