IMF sees emerging diversification in Kuwait

• Fund says Kuwait becoming dynamic economy
• Any infrastructure delays pose top domestic risk
• Vulnerable to swings in oil price

Kuwait is evolving from an “oil-dependent welfare state” into a “dynamic and diversified economy” as officials pursue ambitious reforms, the International Monetary Fund said in its latest annual assessment.

However, the IMF cautioned that any slowdown in structural reforms or delays to infrastructure projects would pose the most significant domestic risk to Kuwait’s diversification push.

The economy remains heavily reliant on oil revenue and vulnerable to price swings, leaving it exposed to shifts in global economic and financial conditions. Even so, the fund said risks are broadly balanced.

The IMF said an incipient recovery was ongoing last year amid falling inflation, after the Kuwaiti economy shrank in 2024.

“Looking ahead, the economy is expected to recover,” the organisation said in a press release on Tuesday.

Strong growth in non-hydrocarbon sectors and increased crude production as Opec+ unwinds voluntary cuts are expected to drive a nearly 4 percent expansion in real gross domestic product this year.

Higher public spending and still-low oil prices will push budget deficits up in the near and medium term, and put moderate pressure on the current-account surplus, according to the IMF. 

Kuwait needs a “comprehensive and well-sequenced” reform package, the fund’s executive directors said in a statement accompanying the Article IV staff review.  

“Fiscal reforms should reinforce long-term fiscal sustainability and intergenerational equity while incentivizing Kuwaitis to pursue jobs in the private sector,” they said. “In parallel, structural reforms should unify the labor market and improve the business environment.”

Reducing public-sector wages, building more housing, and enhancing financial markets are among the top priorities in a country where the state “owns most productive assets, employs nearly all Kuwaitis, and leads all megaprojects”, according to the executive directors.

Further reading:

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• Kuwait expects record non-oil revenue in 2026-27
• Saudi Arabia and Kuwait launch joint business body