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indicating that the current account surplus narrowed to about 31.4 percent of the GDP in 2023, with the trade balance surplus for goods and services declining by 10.3 percent of the GDP as a result of the decline in oil prices.

The strength and solidity of the Kuwaiti banking sector are due to the prudent regulatory requirements of the Central Bank in lending operations and building provisions, as the results of the stress tests conducted by the Central Bank showed that the liquidity and capitalization ratios of the sector exceeded the minimum requirements of Basel III, while the rates of non-performing loans remained low.

The experts praised the Central Bank’s prudence in containing and managing systemic risks, noting that the credit slowdown resulting from the pandemic has begun to gradually recede, as the Central Bank’s position on the macroprudential policy was appropriate given the containment of systemic risks and weak credit growth. Experts stressed that the dinar exchange rate system linked to an (undisclosed) basket of currencies is an appropriate pillar for monetary policy, indicating that this system has contributed to keeping inflation low and stable for many years and that maintaining this successful record of monetary policy requires maintaining the independence of the Central Bank.

They noted that the position of the Central Bank in terms of restricting monetary policy provides relative flexibility, as the current interest rate is in line with containing inflation and stabilizing the output of non-oil sectors. The Kuwaiti economy is exposed to a variety of global risks due to its dependence on oil, especially fluctuations in commodity prices, changes in global growth, and the escalation of regional conflicts. These risks are transmitted to the economy through their impact on oil prices and production. Domestic risks are mainly related to the extent of implementation of financial and structural reforms. These reforms are necessary to diversify the economy away from oil, which enhances its flexibility and stimulates private investment.

Regarding financial reforms, the Fund’s experts said that the Kuwaiti authorities are looking forward to implementing reforms to support the transition to a dynamic and diversified economy, and to achieve that goal, “there is a need to significantly adjust the public finances situation on the public spending side and the non-oil revenue side. They added: “Reducing current spending requires rationalizing the public sector wage bill, gradually eliminating heavy energy subsidies and replacing them with targeted subsidies for the most vulnerable groups, and to increase non-oil revenues, a value-added tax and a selective goods tax must be introduced.”

The mission welcomed the government’s plan to expand corporate income tax to include all major local companies, considering that “the existence of a medium-term framework for public finance and the macro-economy would enhance the government’s ability to analyze and forecast fiscal policy, including setting a framework for fiscal rules with a ceiling on public debt and a target for the general budget balance for non-oil sectors. — KUNA

They stated that “public financing must be facilitated by issuing a law on liquidity and government financing as soon as possible,” stressing that enhancing economic diversification requires major reforms in the labor market. They explained that to encourage Kuwaitis to seek work in the private sector, compensation and working conditions should be more consistent between the public and private sectors,” indicating that improving the quality of education and aligning it with the needs of the private sector would increase productivity and support economic diversification.- KUNA