UPDATE 1-IMF calls for "strong" fiscal consolidation in Kuwait

(Updates with background, details)

DUBAI, April 15 (Reuters) - The International Monetary Fund said on Thursday Kuwait would need strong fiscal consolidation to support growth after its finances were battered last year.

The Gulf state's economy shrank by 8% last year, the Fund said in a statement on Thursday, adding that the country's fiscal balance worsened significantly year-on-year.

Kuwait, like other oil exporters in the region, was hurt by the double shock of low oil prices and the COVID-19 pandemic, but a standoff between government and parliament has added pressure as reforms needed to refill state coffers have stalled.

The IMF expects a gradual recovery and said that, as the recovery firms up, "strong fiscal consolidation and structural reforms would be needed to preserve fiscal buffers and strengthen growth."

It said, however, that the Kuwaiti banking sector remained well capitalised and liquid, despite last year's downturn.

Kuwait has taken several steps to mitigate a depletion of liquid assets at the treasury, including raising funds through asset swaps with its wealthy Future Generations Fund - a nest egg for when the country's oil runs out.

Such steps may push back the risk of a liquidity crunch to the third quarter this year, Bank of America said last month. (Reporting by Davide Barbuscia; Editing by Jon Boyle and Toby Chopra)