Fitch Ratings said Kuwait’s recent amendment to the Future Generations Fund Law, which allows the government to borrow from the sovereign wealth fund, enhances the country’s sovereign financing flexibility and could slow the pace of public debt growth if borrowing from the fund is used more frequently.
The amendment, which took effect on September 1, allows borrowing from the Future Generations Fund to support the General Reserve Fund and help meet the government’s financing needs, including fiscal and external requirements. Fitch said Kuwait’s strong fiscal and external balance sheets remain key pillars of its “AA-” sovereign rating with a stable outlook, which the agency affirmed on August 7.
The agency estimates Kuwait’s sovereign net foreign assets, which are not officially disclosed, at around 668 percent of GDP in 2026. This is more than 10 times the average for countries rated “AA” and above Fitch’s estimated average of 577 percent for 2023-2025. Fitch said these substantial external assets provide significant fiscal space to absorb pressures arising from higher debt and government spending.
More financing options
The amendment to the Future Generations Fund Law adds to the financing flexibility provided by the Finance and Liquidity Law issued in March 2025, which allows the government to issue local and external debt instruments worth up to 30 billion dinars, equivalent to about 60 percent of GDP, over the next 50 years.
Fitch noted that previous government debt-issuance mandates expired in 2017. Combined with the decline in oil prices during the COVID-19 pandemic and restrictions on access to the Future Generations Fund, this had increased uncertainty over the government’s available financing options.
The Sukuk Law has also been passed and, once implemented, is expected to further diversify the government’s funding sources. Fitch treats the Future Generations Fund as part of the government. It therefore considers borrowing from the fund to be an internal transaction between government entities, with the amount recorded as an asset of the Future Generations Fund and a liability of the General Reserve Fund.
Public debt rises
As a result, the borrowing does not affect Fitch’s measure of government public debt. Fitch said Kuwait’s public debt rose to 15 percent of GDP in the fiscal year ending March 2026, compared with about 3 percent in fiscal 2024, amid a large central government fiscal deficit, excluding investment income estimated by Fitch for the Public Investment Authority.
The increase was driven by higher government spending and lower oil revenues, according to the agency. Fitch said more frequent borrowing from the Future Generations Fund could reduce the need for government debt issuance and therefore slow the accumulation of public debt compared with the agency’s forecasts in its August rating review.
At that time, Fitch projected public debt would rise to 29 percent of GDP in fiscal 2026 and 34 percent in fiscal 2027. It also forecast the fiscal deficit, excluding investment income, would widen to 19 percent of GDP in fiscal 2026.
The agency expected most financing needs to be met through borrowing, with the remainder covered by withdrawals of liquidity from the General Reserve Fund. Fitch estimated such withdrawals would average 14 percent of GDP during 2026-2027, compared with 16 percent of GDP in fiscal 2025.
Fitch said it will update its forecasts for General Reserve Fund withdrawals and government debt later in September as part of its quarterly sovereign data comparison. Despite the projected increase, the agency said Kuwait’s debt would remain significantly below the “AA” average of about 51 percent of GDP in 2026, based on its estimates.
Spending and non-oil revenues
Fitch said the government has taken some limited steps to increase non-oil revenues, while current spending remains high. The largest share of current spending is concentrated in public-sector wages and subsidies, which accounted for 81 percent of total spending and 40 percent of GDP in fiscal 2025.
The agency said broader reforms to Kuwait’s employment and social welfare system appear unlikely in the near term, despite recent labor-market measures under the Kuwaitization policy, including quotas for employing Kuwaiti citizens in the private sector.
