IMF Expects Kuwaiti Growth To Slow To 6.6% In 2012

Kuwait’s economic growth is expected to slow to 6.6% in 2012 from 8.25% in 2011, though higher public spending and buoyant oil revenues should keep the economy growing rapidly this year, the International Monetary Fund said.
In its latest Article IV review of the Kuwaiti economy, the IMF said high oil revenues and prices have helped Kuwait generate large fiscal surpluses that have fed its growing public spending.

“Higher oil revenues resulted in an increase in Kuwait’s current account and fiscal surpluses to over 14% and 30% of GDP respectively” in 2011, the IMF said.

But the IMF said it expects Kuwaiti growth to slow rapidly to 1.8% in 2013. It didn’t provide a reason for the sharp drop in next year’s predicted growth rate.

In May, the IMF said it expected oil-rich Arab Gulf states would see lower economic growth in 2012 as weaker global demand pushes oil production down from 2011 levels.

IMF officials have also said that a further downturn in the euro zone could affect global oil demand and push prices lower. However, the IMF remains positive regarding Kuwait’s short-term economic outlook.

“The economic outlook for 2012 is broadly positive. Economic recovery is expected to strengthen, led by high government expenditure–particularly wages and capital expenditure. High fiscal and external surpluses are expected to persist… (and) near term economic policies should continue to remain supportive,” the IMF said.

But the IMF reiterated a warning that Kuwait should curb expenditure in order to preserve the wealth for future generations.

It said Kuwait needed to introduce fiscal reforms, such as a a value added tax, and contain spending on public sector wages and pension costs if it to avoid further pressures on the budget. Kuwait also needs to ease its dependence on oil revenues.

The IMF had warned in May that a combination of higher wages and a rising population risks consuming all the country’s oil revenues by the year 2017, which would prevent Kuwait from setting aside surplus oil wealth for future generations.
The Kuwait government’s wage bill and capital expenditures are estimated to have increased by almost 20% in 2011-12, Zawya Dow Jones News reported.

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