Trade Arabia - 12/4/2006

Kuwait's strong economic growth, fuelled by high oil prices, is likely to slow down unless key structural reforms are implemented, the International Monetary Fund (IMF) said.

A report on the IMF's website published this week said Kuwait's macroeconomic performance had been strong in recent years, with real growth in gross domestic product (GDP) averaging 7.5 per cent in 2004-05.

Inflation remained low, the current account and fiscal surpluses increased sharply and the stock market index has soared in recent years.

But the IMF said progress on structural reforms remained slow in the country.

"The authorities have adopted some measures to allow for a broader role of the private sector in the economy but implementation of the reform agenda has been slower than expected, in part, due to difficulties in reaching a political consensus," said the report, prepared after talks with Kuwaiti officials.

Oil and Petroleum Exporting Nations (Opec) nation Kuwait controls nearly a tenth of global oil reserves and its oil sales account for up to 50 per cent of GDP and up to 90 per cent of state revenue.

The IMF said this would help the country log a budget surplus of some $24 billion in the fiscal year that ended March 31.

The IMF encouraged Kuwait to consider improving the budget structure by gradually boosting capital expenditure, rationalising transfers and subsidies, and achieving a better balance between productive spending and fiscal saving.

Effectively managing the rapidly growing savings fund, the Fund for Future Generations, will also be key to Kuwait's long-term fiscal viability, the report added.

It said Kuwait's monetary policy had been successful in maintaining price stability and the exchange rate peg.

But it said the continuing upward trend in stock prices posed some risk to the otherwise favourable outlook for the financial sector, and it urged Kuwait to pass a capital market authority law quickly to strengthen scrutiny of the bourse.

Kuwait's cabinet approved on Sunday a plan to create a watchdog body for the bourse, the Arab world's second largest.