Kuwait's economy to remain in recession due to Opec+ oil cuts, IMF says

Kuwait's economy is expected to remain in a recession this year due to voluntary Opec+ production cuts, the International Monetary Fund (IMF) said on Monday.

“The economy is projected to remain in recession under the baseline in 2024, then to recover over the medium term,” the IMF said after its article IV consultation, which comes a week after Opec+ announced it was extending voluntary cuts of 2.2 million barrels per day until April 2025.

The group said after that, the cuts would be phased out until the end of September 2026. Opec also announced the extension of oil production cuts of 1.65 million barrels per day until the end of 2026.

Kuwait's GDP contracted by 3.6 per cent last year, due largely to a 4.3 per cent contraction in its oil sector because of Opec production cuts. Meanwhile, its non-oil sector shrank by 1 per cent.

Kuwait's economy shrank by 1.5 per cent on an annual basis in the second quarter of this year due to a 6.8 contraction in the oil sector, which was only partially offset by 4.2 per cent growth in its non-oil sector.

“The economy is highly exposed to a variety of global risks through its oil dependence, in particular to commodity price volatility, a global growth slowdown or acceleration and the intensification of regional conflicts,” the IMF said.

Lower oil prices and production have weakened Kuwait's external and fiscal balances, although financial stability has been maintained, the IMF said. The fiscal balance moved into a deficit of 3.1 per cent of GDP in the 2023-24 fiscal year.

Meanwhile, Kuwait's external position “remains strong”, the IMF said. Kuwait's current account surplus moderated to 31.4 per cent of GDP last year, while reserve assets were $47.6 billion.

The IMF projects Kuwait's economy to grow by 2.6 per cent next year as Opec+ production cuts kick unwind. The Washington-based lender noted the beginning stages of the non-oil sector's recovery would continue this year, growing 2 per cent despite fiscal consolidation. Non-oil growth is forecast to grow by 2.1 per cent in 2025.

Headline inflation is expected to climb down from 3.6 per cent last year to 3 per cent this year, before moderating further to 2.4 per cent in 2025. Kuwait's current account surplus is also expected to moderate to 27.2 per cent of GDP this year, while the fiscal deficit is set to increase to 6.6 per cent of GDP in the 2024-25 fiscal year “as lower oil revenue more than offsets expenditure rationalisation”.

The IMF noted downside risks weigh on Kuwait's economic outlook due to the country's dependence on oil, which “underscores the need for sustained diversification efforts”.

Like other Gulf nations, Kuwait is working to diversify its economy and reduce its dependency on oil. However, while its neighbours such as Saudi Arabia and the UAE have begun efforts with liquefied natural gas and renewables, Kuwait, which relies on oil exports for about 90 per cent of its government revenue, is falling behind, S&P Global reported in March.

The IMF's executive board said it welcomed the government's focus to transition into a diversified economy and also noted the importance of comprehensive fiscal and structural reforms.

The IMF's executive board also stressed the need for fiscal consolidation in the medium term, noted the need to extend the corporate income tax to all large domestic companies and implement VAT and excise taxes its neighbours in the Gulf have adopted.