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With Kuwait’s oil revenue down by 51% this year (see p9) the IMF says that Kuwait needs to seize the opportunity to comprehensively reform domestic energy prices.
Prices should be raised to international levels with a mechanism introduced to “depoliticize” price setting. Such price reform will create “budget space” to protect social spending and public investment during the fiscal adjustment process, and at the same time create incentives to reduce energy consumption, the IMF says in a 2 December study.
Though Kuwait has among the highest fiscal reserves of any Opec or Gulf country – the equivalent of 320% of GDP at end-2014 – and is thus one of the more able to withstand a sustained period of low oil prices, its fiscal and current account balances have nevertheless been hit for six, with the IMF as a result scaling back its growth projections. That said, such reserves enable Kuwait to “smooth fiscal adjustment” to an extent not available to some other oil producers, whilst maintaining investment spending, the IMF notes.
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