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The IMF has projected above 8% real GDP growth for Kuwait this year before moderating in 2023.
Overall, real GDP growth is estimated to have rebounded from -8.9% in 2020 to 1.3% in 2021, the development bank's staff mission said in a statement issued on Thursday following a recent visit.
The rise in GDP growth in 2022 is supported by increased oil production, high oil prices, and sustained improvement in domestic demand, it said.
"In 2023, growth is likely to moderate, reflecting slowing external demand and oil production cuts under the OPEC+ agreement. Direct adverse spillovers from the Russia’s war in Ukraine have been contained so far given the limited trade and financial linkages with both countries."
Since the war began, the Middle East's oil producers have benefitted from the higher oil prices, with IMF itself estimating earlier this year that they would reap a windfall of up to $1.3 trillion over the next four years.
For Kuwait, which produces around 2.6 million barrels of crude per day, the higher oil prices and output have led to higher overall fiscal and current account surpluses this year.
IMF said inflation has been contained, benefiting from monetary tightening and limited passthrough from higher global food and energy prices supported by administered prices and subsidies.
The Kuwaiti banking system continues "to be well-capitalized and liquid, financial soundness indicators are healthy, and private sector credit growth remains strong".
However, the bank warned the outlook is subject to uncertainties and risks surrounding the external environment, including potential impacts of monetary policy tightening in major advanced economies and further slowdown in global economic activity.
Delays in key fiscal and structural reforms could "amplify the risk of procyclical fiscal policies, and hinder progress toward more economic diversification and higher competitiveness."
(Reporting by Brinda Darasha; editing by Cleofe Maceda)
