Learn how the World Bank Group is helping countries with COVID-19 (coronavirus). Find Out

publication May 1, 2019

Kuwait: Economic Update - April 2019

GDP growth has recovered in line with oil sector developments, and external and fiscal balances improved amidst higher energy prices in 2017-18. A loose fiscal stance and rising public infrastructure spending will buttress growth in the medium term. Continued volatility in oil prices underscores the need to accelerate key fiscal reforms. The slow pace of structural reforms needed to diversify away from hydrocarbons and support private sector activity is a key challenge.

OPEC+ oil output cuts in the first half of 2019 are expected to keep growth subdued at 1.6% in 2019. In the medium term, the economy is expected to grow at around 3% as higher government spending supports the non-oil sector. Plans to invest US$115 billion in the oil sector over the next five years should further boost oil production, if they can be implemented – a long standing challenge. Resumption of production in the shared fields (Khafji and Wafra) with Saudi Arabia offers a more immediate prospect of an oil sector boost. In March 2018, the government announced the Northern Gulf Gateway project, which aims to connect Kuwait and its hinterland countries with China’s Belt and Road Initiative, beginning with the operation of the new Mubarak al-Kabeer port. Growth could prove higher if Gulf Gateway projects are implemented.

Key external risks include spillovers from geo-political tensions and conflict, global financial volatility, and volatility in oil prices. A slowdown in global growth could prompt a decline in energy prices, which would add pressure on fiscal and external balances. Lower oil prices in recent years have, in the meantime, resulted in a depletion of liquidity buffers; further drawdowns from the GRF could erode these further. To mitigate these risks, and to secure fiscal sustainability, the government will need to persevere with fiscal consolidation, expenditure rationalization and revenue mobilization reforms over the medium term. However, parliamentary opposition to critical fiscal reforms remains a key challenge.