Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Kuwait is a very rich country and has developed a welfare state for its nationals, who enjoy a very high per capita income. Kuwait's economic growth was negative at -0.6% in 2019 as lower oil output and weaker oil prices offset the steady expansion of the non-oil sector. Due to the COVID-19 pandemic, it plummeted to -8.9% in 2020 but came back to positive territory at 0.9% in 2021. It was expected to reach 4.3% in 2022 and 2.7% in 2023, subject to the post-pandemic global economic recovery (IMF, October 2021). Government spending, employment and credit growth are expected to support economic activity in the short term; nonetheless, this will depend on stable oil prices and higher oil output.

Kuwait’s public finances were relatively healthy in 2020, with a debt-to-GDP ratio of 11.7% that year. Despite the international context created by the COVID-19 pandemic the ratios decrease to only 7.9% in 2021. It is expected to increase to 10.8% in 2022 and 21.6% in 2023. Government spending is also expected to increase in the coming years amid plans to boost credit, employment and wages. At the same time, tax collection remains low as the government has delayed the introduction of a VAT and an excise tax on tobacco and sugary drinks. The excise tax and the VAT are set to be introduced in 2023. Low fiscal revenues combined with reduced oil export earnings, due to falling global oil prices and OPEC oil production in the wake of the Covid-19 pandemic, haven't put pressure on the current account surplus: it went from 16.3% of GDP in 2019 to 16.7% in 2020 and 15.5% in 2021. The current account balance is estimated to decrease to 13.3% in 2022 and 10.7% in 2023 (IMF, October 2021). Inflation ticked up to 1.1% in 2019 from 0.6% a year earlier, and then 2.1% in 2020 and 3.2% in 2021. It should stabilise at 3% in 2021 and 2022 (IMF, 2021). Kuwait's plans to introduce a new debt law continues to be delayed, with the Parliament expected to review the law proposal in 2022. Contrary to most countries, Kuwait can’t borrow money on international markets, for lack of legislation. A lack of debt law means that the government has been unable to issue debt since October 2017 and had to resort to General Reserves Fund for financing purposes. The continued drawdown from the Fund also weighed on Kuwait Investment Authority's assets - manager of the said fund - despite mandatory transfers from the government to its Future Generations Fund.

Persian Gulf nations, among the world’s richest at the turn of the century, have lost ground as the oil price receded. Bahrain, Kuwait, Oman and Saudi Arabia are all dropping out of the global top 20 as living standards stagnate or decline. Most of the country's wealth is concentrated in the hands of local citizens, while the majority of workers (especially from Asia) live in poor conditions. Unemployment rate is almost non-existent.

The Kuwait Investment Authority’s assets (estimated at US$690 billion) will continue to act as a fiscal backstop. As oil export earnings recover in the medium term, underpinned by improvements in global demand conditions, and as concerns over the pandemic wane, the current account balance will continue to expand. A downside risk to this is economic recovery in China, which constitutes 25 percent of Kuwait’s exports (World Bank, 2022).

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