Kuwait will have exhausted all its oil savings by 2017 if it keeps on spending money at the current rate, the International Monetary Fund said in a report published on Tuesday.
The IMF, which held a regular consultation with the OPEC member state in the last two weeks of April, said Kuwait would not be able to save oil receipts into its future generations fund.
It needed to diversify its economy and improve its infrastructure and climate for investment if it was to remain in good financial health.
It said the Gulf state would have to cut the fiscal deficit excluding oil and debt servicing by at least 7 billion dinars ($25 billion) by 2017 to ensure long-term fiscal sustainability.
That compared with projected state spending of around 25 billion dinars in 2017.
“The need of fiscal consolidation is larger and more urgent in a scenario of lower oil prices,” it said.
Kuwait had a sound fiscal buffer thanks to thirteen consecutive years of fiscal surpluses, the IMF said, estimating its budget break-even oil price at $44 per barrel for the fiscal year that ended in March.
That compares with current market prices above $112 per barrel.
But rising public sector wages, an “onerous” pension system and rapid population growth would put pressure on public finances.
Kuwait’s early statutory retirement age of 55 is one of lowest in the world and about 60 percent of the population is under 24 years old.
Kuwait’s economic recovery was expected to strengthen, led by high government expenditure, the fund said in the report, part of which the country’s central bank governor commented on Sunday.
But the government and parliament needed to push through an agenda which improved the investment climate and promoted sustainable and inclusive growth, it said.
Failure to do this would put the timetable for Kuwait’s 30 billion dinar development plan at risk.