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Abu Dhabi, UAEFriday 21 September 2018

Kuwait inflation to triple next year after government plan to impose VAT

Expected implementation of value-added tax in 2019 will cause year-end inflation to jump to 4.5%

Kuwait annual inflation is expected to spike next year after the anticipated introduction of VAT. Yasser Al Zayyat / AFP.
Kuwait annual inflation is expected to spike next year after the anticipated introduction of VAT. Yasser Al Zayyat / AFP.

Kuwait's annual inflation rate is expected to triple next year after the government's anticipated decision to impose the much-delayed VAT, according to a new report.

The country's year-end inflation will spike to 4.5 per cent in 2019, up from a forecast of 1.5 per cent at the end of 2018 after the expected introduction of VAT, according to a report by Business Monitor International Research. This year's inflation will remain low partly because of slow economic growth and government reluctance to raise domestic petrol prices.

"Inflation in Kuwait will remain subdued in 2018 before rising in 2019 on the back of the introduction of VAT," the report said.

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The expected post-VAT spike in Kuwait inflation mirrors a similar rise in prices in Saudi Arabia and UAE after they imposed a 5 per cent tax this year. The kingdom's annual inflation jumped to 3 per cent in January, while data showed prices in Dubai rose to 2.7 per cent in the same period from 1.5 per cent in December.

Kuwait remains in discussions over the decision to impose VAT, while Arabian Gulf neighbours Oman and Bahrain have not introduced the tax partly out of concern about the effect on inflation and living standards.

Kuwait is expected to mimic the US Federal Reserve by making a further 50 basis points worth of hikes in 2018 and 50 more basis points in 2019 to its key interest rate, taking it up to 3.5 per cent and 4 per cent at the end of 2018 and 2019, respectively, the report said. On March 21, the central bank of Kuwait raised its interest rate by a quarter-point for the first time in a year to match a move of the same size by the Fed.

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