São Paulo – Kuwait needs to develop other areas of its economy in order to reduce its dependency on oil revenues, according to a report issued this Monday (30th) by the International Monetary Fund (IMF). This year, the country’s non-oil industry is projected to grow by 3%, a rate deemed “modest” by the Fund. The rate should be up 4.4% in 2014 and 5% in the medium term.
According to the Fund, growth in the country’s non-oil sectors this year should be driven by steady growth of domestic consumption, as a result of wage increases to government officials in 2012, and a slight increase in um in government spending.
The IMF notes, however, that public sector wage increases discourages workers from seeking private sector employment. “Government job creation and increases in public sector wages reduce incentives for nationals to work in the private sector,” according to the document.
“Similarly, the large subsidy bill reduces the fiscal space for the much needed social and infrastructure investments. Subsidies, particularly for electricity and fuel subsidies (over 6 percent of GDP) engender wasteful consumption and need to be targeted,” according to the IMF.
The report stresses the need for a plan to create private sector jobs, including training programs, improving educational quality, vocational training, female labour force training, and encouragement to women’s entrepreneurship. “The government’s focus on developing small and medium-sized enterprises has the potential to improve economic diversification and create employment.”
The IMF believes Kuwait should create “special economic zones” in order to alleviate the scarcity of land availability to the private sector. “Promotion of export-oriented industries would further support diversification efforts. An avenue to improving export diversification would be to enhance current non-oil exports and support the entry into new product markets to generate productivity gains. Manufacturing has strong potential to create a mix of various tradable goods, and there is also scope to expand the role of tradable services,” according to the report.
*Translated by Gabriel Pomerancblum
