International Monetary Fund concludes Kuwait Article IV consultation and recommends 1 percent of GDP annual fiscal consolidation with VAT and broader corporate income tax

The International Monetary Fund (IMF) Executive Board has concluded its 2025 Article IV consultation with Kuwait, noting that the economy is rebounding as OPEC+ production cuts unwind and non-oil growth remains robust, while inflation is moderating. The IMF assessed that lower oil revenues have weakened fiscal and external positions, but external buffers remain large and the financial system is stable. Under the baseline, real GDP growth is projected at 3.8 percent in 2026 and headline CPI inflation at 2.1 percent, with fiscal and current account balances expected to deteriorate as lower oil prices weigh on revenues and exports. To achieve long-term fiscal sustainability and support diversification, the IMF recommended gradual fiscal consolidation of about 1 percent of GDP per year over the next decade and a package of fiscal, public financial management, and structural reforms, including extending the 15 percent corporate income tax to all domestic companies, introducing a GCC-wide excise tax and a 5 percent value-added tax, and reforms to the public sector wage bill and hiring. It also called for gradual increases in retail fuel, electricity, and water prices toward GCC-average levels with targeted cash transfers for vulnerable groups, further scaling up on-budget public investment by around 2 percent of GDP over the medium term, and strengthening frameworks for medium-term budgeting, fiscal rules, debt management, and sovereign asset-liability management. On monetary and financial policies, the IMF considered the exchange rate peg an appropriate nominal anchor, while noting that the external position in 2025 was substantially weaker than implied by medium-term fundamentals and desirable policies. With a credit cycle upturn underway and ahead of the forthcoming Real Estate Financing Law that will allow banks to offer mortgage loans for the first time, it recommended that the Central Bank of Kuwait consider reclassifying part of its country-specific capital buffer as a positive neutral countercyclical capital buffer and continue its risk-based supervisory approach and regular reviews of the regulatory perimeter and macroprudential toolkit.