Kuwait, Opec’s fourth-largest oil producer, is set to expand after growing 1.7 per cent in 2018 following a 3.5 per cent contraction a year earlier, the International Monetary Fund said.

The IMF assumed an average oil price of $57 per barrel in 2019-20, increasing to $60 per barrel over the medium term, said the Washington-based lender after concluding a mission visit to Kuwait. "As capital project implementation accelerates, non-oil growth is projected to increase to about 3.5 percent in 2020," it said.

The overall economy is projected to expand 2.9 per cent next year, the fund said.

Kuwait and other Arabian Gulf countries are implementing reforms as Brent oil prices are currently almost half of their-mid-2014 level of $115 per barrel. These reforms include cutting energy subsidies and in the case of the UAE, Saudi Arabia and Bahrain, introducing a 5 per cent VAT.

The fund also said Kuwait is in a good position to undertake reforms at a gradual pace to cope with the low oil price environment.

"Ample financial assets, low debt, and a sound banking sector allow Kuwait to undertake the needed reforms from a position of strength and at a measured pace," the fund said. “The mission considers that the fiscal adjustment should be primarily expenditure-based, supported by non-oil revenue mobilisation.”

The IMF expects excise taxes on sugary drinks and tobacco to be introduced in Kuwait in the financial year 2020-21 and VAT in financial year 2021-22. Saudi Arabia and UAE introduced VAT in 2018 and Bahrain did so this year.

“Despite earlier reforms, at 5.3 per cent of GDP, the fuel and utility subsidy bill remains large,” the fund said. “Comprehensive reform that centralises compensation policy, harmonises the public wage grid structure, better aligns public sector wages with those in the private sector, and fosters merit-based compensation would generate sizeable savings over time.”