The International Monetary Fund reported that Kuwait’s economy grew 1.7 percent in the second quarter of 2025 after the country recorded a contraction in the preceding year as it was experiencing a reduction in inflation.
According to the latest Article IV consultation of the institution, the real gross domestic product growth over the three months was spearheaded by an increase in the non-oil sectors by 3.1 percent.
Headline inflation declined to 2.4 percent in November, and fiscal and external positions were sound, backed by large buffers and a stable financial system.
Regardless of these initial successes, the IMF cautioned that the non-oil growth will need an extensive package of fiscal and structural measures, including the extension of 15 percent corporate income tax to all domestic businesses, revision of public-sector wages, and raising energy subsidies to the average of the Gulf Cooperation Council.
Kristalina Georgieva, managing director of the IMF, said in October that the IMF forecasted that the GCC would continue to shine through in the global economy despite the increasing uncertainty, and that the overall growth would reach approximately 4 percent in 2026, which is backed by robust non-hydrocarbon economies, the depletion of voluntary oil production limits, and the growth of gas production.
In its latest report on Kuwait, the IMF said: “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.”
In the upcoming years, the fund stated that the economy will recover, and real GDP is projected to increase by 3.8 percent in 2026 due to the removal of OPEC + production restrictions and strong non-oil development, projected at 3.0 percent of GDP.
However, the headline CPI inflation will slow down to 2.1 percent in 2026 and subsequently stabilize at slightly lower levels, 2 percent in the medium term.
The fiscal deficit of the budgetary central government is projected to rise to 8.7 percent of GDP in the 2025-26 financial year and 9.4 percent in the following year, reflecting higher spending and lower oil revenue.
The current account surplus is expected to moderate to 19.6 percent of GDP in 2026, largely due to reduced oil exports, and decline gradually over the medium term.
The IMF reported, “Fiscal reforms should reinforce long-term fiscal sustainability and intergenerational equity while incentivizing Kuwaitis to pursue jobs in the private sector.” Concurrently, it stated that structural reforms were necessary to harmonize the labor market and to enhance the business environment.
Therefore, the fund suggested gradual fiscal consolidation at about 1 percent of GDP per year over the next decade. It also demanded expansion of the 15 percent corporate income tax to all domestic firms and creation of GCC-wide excise taxes and a 5 percent value-added tax.
The IMF demanded the reformation of public sector wages to a performance-based system and the establishment of a limit on hiring to slow the growth of public employment over time.
Subsidies on energy, fuel, electricity, and water should be gradually increased to GCC average levels, and specific cash payments are to be made to the vulnerable population. On-budget state investment is to be increased by approximately 2 percent of GDP over the medium term.
The IMF suggested on governance that Kuwait should construct a medium-term fiscal setup, and has explicit guidelines on debt and non-oil balances, carry out regular evaluations of public investment, publish a debt management plan, and establish a sovereign asset-liability structure to handle intergenerational fiscal risks.
Financially, the fund indicated that the exchange rate peg is still suitable and that closer monitoring of banks and macroprudential policies is necessary to maintain stability.
It also suggested that systemic risks should be managed with care, such as amending capital buffers and preparing to lend mortgages under the future Real Estate Financing Law.
“Systemic risk remains contained and prudently managed,” the IMF said, adding that with a credit cycle upturn underway, the Central Bank of Kuwait “should consider reclassifying part of its country-specific capital buffer as a positive neutral countercyclical capital buffer.”
The fund has focused on macro structural reforms such as shrinking the public sector wage premium, increasing the supply of housing, liberalizing financial markets, and enhancing the business environment.
Enhancing statistical capacity was also raised as a necessity, where gaps in national accounts, government finance, and external sector data must be bridged to facilitate informed policy choices.
