Arab Times - 1/4/2006
An assessment on Kuwait by the Executive Board of the International Monetary Fund (IMF) found that the overall fiscal position of the State of Kuwait will remain in a comfortable surplus for the foreseeable future. The report, made public on Thursday, urged Kuwaiti authorities to “seize this opportunity to further improve the structure of the budget by gradually increasing capital expenditure, rationalizing subsidies and achieving a better balance between productive expenditure and fiscal savings.” The IMF Executive Directors commended Kuwait for strengthening the country’s macroeconomic position last year with high paced economic expansion, driven in part by oil-related gains.
Kuwaits fiscal surplus was estimated to be around 24 percent of the countrys GDP for fiscal year 2004/05 and the “external current account” annual surplus averaged around $25-billion, said the report. Per capita income was also boosted, which contributed to the “large fiscal and current account surplus” in addition to the “rapid accumulation of external assets for future generations.” The directors agreed that the financial outlook of Kuwait will “remain strong over the medium term.” Authorities in Kuwait were encouraged to develop a transparent strategy to manage the surpluses and foster the private sector through job creation to “absorb the rapidly growing Kuwaiti labor force.”
Kuwait was also commended for playing a constructive role in oil price stability and its efforts to expand capacity, increase refining operations and double petrochemicals production. These actions demonstrated the authorities’ readiness to support global economic expansion through oil market stability and also realize financial gains for the Kuwaiti population, said the IMF directors. Moreover, efforts to improve Kuwaiti health, education and various other public sectors through increased investment are “key to Kuwaits long-term fiscal viability,” said the report.
While the IMF supported Kuwaiti plans to build up the social security Reserve Fund for Future Generations, it recommended that there be a “Value Added Tax” to increase non-oil revenues as some Gulf Cooperation Council countries have done. The Kuwait banking system was commended in the report for moving towards greater privatization, but Kuwaiti authorities were advised to pass capital market and insurance laws and create a comprehensive oversight of the stock exchange, investment companies and insurance sector. Overall, the Kuwaiti banking systems was characterized as “financially sound, well managed and well supervised.”
Recommendations were made for Kuwait to continue investing, creating jobs, strengthening the private sector and update laws for a more “market-friendly environment.” IMF directors welcomed Kuwait’s contribution to oil market transparency and expressed their appreciation to the Kuwaiti authorities for their continued support to low-income countries through their “sizeable external development assistance programs.” The IMF, headquartered in Washington, is 184-member country organziation that aims to secure financial stability and promote economc growth through trade and a reduction of poverty around the world.