São Paulo – Kuwait’s economy is set to grow by 1.3% in 2014, its current account surplus is equivalent to 38% of Gross Domestic Product (GDP) and inflation should increase slightly to 3% by the end of 2014. Despite the stable economic scenario, the International Monetary Fund (IMF) has released a document this Monday (29th) advising Kuwait to strive for economic diversity, be less reliant on oil and rein in public spending. The document is the outcome of meetings between local authorities and IMF technicians who visited the country in September.
According to an IMF press release, Kuwait’s economy is thriving and stable due to booming oil prices, the country’s leading revenue source. The IMF says the commodity’s international prices are high, but Kuwait cannot rely on this single income source, because in case oil prices drop below the so-called “breakeven price,” the country’s economy may suffer.
According to the Fund, the breakeven price is the minimum oil barrel price required to balance out budget and spending. The breakeven price forecast for 2014/2015 is US$ 75 per barrel, but the price has gone up over the past few years, according to the IMF.
“Although the current fiscal position is strong, spending rigidities and reliance on oil revenues have highlighted fiscal risks. Containing current spending growth by restraining the wage bill and reforming subsidies are important for ensuring fiscal sustainability,” the document reads.
The IMF concedes, however, that the country has already begun implementing reforms to cut spending. One of them entailed ending diesel subsidies. Further subsidies for kerosene and electricity should also be eliminated soon.
Another of the Fund’s recommendation local authorities are beginning to implement is economic diversification to reduce dependency on oil. To this end, however, the IMF claims that apart from channelling investment into other areas, Kuwait needs to change the scheme by which it grants incentives to public and private sectors, workers and nationals.
The press release also claims the country must eliminate barriers so that other sectors can develop, and lauded the support and funding currently being provided to smaller businesses.
“Developing SMEs, with the support of the US$ 7.14 billion National Fund for Small and Medium Enterprise Development, is important as a source of job creation for nationals, economic diversification–including promoting non-oil exports–, and sustainable growth,” according to the press release.
Jordan
This Monday, the IMF has also issued a press release about the economy of Jordan. From September 9th to 21st, an IMF delegation was in Amman for the fifth and sixth reviews of the country’s economy – the reviews are provided for by a stand-by loan agreement between Jordan and the IMF.
In the press release, the fund claims Jordan’s economy has proven resilient in an increasingly difficult regional environment—particularly disruptions of gas flow from Egypt, the conflict in Syria and the resulting flow of refugees, and the developments in Iraq and Gaza. Growth is expected to reach 3.3% this year, up from 2.8% last year, helped by recovery in several sectors, including in agriculture and mining.
*Translated by Gabriel Pomerancblum
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