IMF Executive Board Concludes 2025 Article IV Consultation with Kuwait

• Economic activity is rebounding, driven by the unwinding of OPEC+ production cuts and robust non-oil growth, with inflation moderating. Lower oil revenues have weakened the external and fiscal positions, but external buffers remain strong.
• Looking ahead, growth is expected to remain robust over the medium term, with inflation continuing to moderate. However, lower oil prices are projected to weigh on fiscal and external balances, while near-term risks remain broadly balanced.
• Kuwait has started the transition from an oil dependent welfare state towards a dynamic and diversified economy. Alongside a public investment scale-up, reform momentum has been building on wide-ranging fiscal and structural reforms.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Kuwait.[1]

An incipient recovery is underway, while inflation continues to moderate. Real GDP expanded by 1.7 percent (y-o-y) in 2025Q2, driven by robust non-oil growth of 3.1 percent (y-o-y), following a contraction in 2024. Headline inflation continued to ease in 2025, reaching 2.4 percent (y-o-y) in November. Despite lower oil prices and production, the fiscal position has improved. The current account surplus moderated to an estimated 23.6 percent of GDP in 2025, and external buffers remain large. The financial system remains stable and prudently managed.

Looking ahead, the economy is expected to recover. Real GDP will expand by 3.8 percent in 2026, driven by the unwinding of OPEC+ production cuts and robust non-oil growth, estimated at 3.0 percent of GDP. Headline CPI inflation will moderate to 2.1 percent in 2026 and then stabilize just below 2.0 percent over the medium term. The fiscal deficit of the budgetary central government will increase to 8.7 percent of GDP in FY2025/26 and 9.4 percent of GDP in FY2026/27, given higher spending and lower oil revenue, then will widen over the medium term. The current account surplus will moderate to 19.6 percent of GDP in 2026, primarily reflecting lower oil exports, then will gradually decline over the medium term.

The risks around these projections are broadly balanced. The economy is highly exposed to a variety of global risks through its oil dependence, especially to commodity price volatility, a global growth slowdown or acceleration, and shifts in global financial conditions. The materialization of these risks would be transmitted to Kuwait mainly via their impacts on oil prices and OPEC+ production. The main domestic risk is changes in the speed of structural reforms and associated infrastructure project implementation to diversify the economy.

Executive Board Assessment[2]

In concluding the 2025 Article IV consultation with Kuwait, Executive Directors endorsed staff’s appraisal, as follows:

An economic recovery is underway, in spite of lower oil prices. Growth is rebounding, driven by the unwinding of OPEC+ production cuts and robust non-oil growth. Inflation continues to moderate, reflecting lower core and food inflation. Lower oil revenues have weakened the external and fiscal positions, but buffers remain strong. Financial stability has been maintained, with a credit cycle upturn underway. These macrofinancial developments are projected to persist under the baseline, which is subject to broadly balanced risks arising mainly from the heavy dependence of the economy on oil.

Staff welcomes the authorities’ Vision 2035 aspirations to implement economic reforms in pursuit of a more diversified economy. To sustainably boost non-oil growth, a comprehensive and well-sequenced package of fiscal and structural reforms is needed. Fiscal reforms should reinforce long-term fiscal sustainability and intergenerational equity while incentivizing Kuwaitis to pursue jobs in the private sector. In parallel, structural reforms should unify the labor market and improve the business environment.

Gradual fiscal consolidation at a pace of about 1 percent of GDP per year would be needed over the next decade to achieve long-term fiscal sustainability. To mobilize non-oil revenue, the 15 percent CIT should be extended to all domestic companies, while the GCC-wide excise tax and 5 percent VAT should be introduced. To rationalize the public sector wage bill, a performance-based public sector wage setting mechanism should be introduced to gradually reduce the large premium over the private sector, and a hiring cap instituted to steadily lower the public sector employment share. To reform energy subsidies, retail fuel, electricity and water prices should be gradually raised towards their GCC-average levels while providing targeted cash transfers to vulnerable groups. Finally, to improve infrastructure, on-budget public investment should be further scaled up, by around 2 percent of GDP over the medium term.

Comprehensive PFM reforms should be implemented to strengthen the conduct of fiscal policy. A priority is to develop a medium-term fiscal framework, including a fiscal rules framework with a ceiling on public debt and a target for the non-oil fiscal balance. In addition, public investment management assessments should be undertaken periodically to ensure best practice in infrastructure governance and track contingent liabilities. Furthermore, the government should publish a medium-term debt management strategy including a bond issuance calendar. Finally, the government should develop a sovereign asset-liability management framework to balance intergenerational fiscal policy tradeoffs while managing risks to the public sector balance sheet.

READ MORE: https://www.imf.org/en/news/articles/2026/02/23/pr-26061-kuwait-imf-executive-board-concludes-2025-article-iv-consultation