Fitch Ratings stated that, Kuwait’s approval of the long-anticipated financing and liquidity law will enhance the country’s financial flexibility and address a key credit risk concern. The agency noted that the law creates opportunities to increase government debt, which has remained at a very low level.
In its report, the agency stated that the approval of the financing and liquidity law is expected to allow the Kuwaiti government to issue international debt bonds for the first time since 2017. The draft law proposes raising around KWD 30 billion through international bonds over a 50-year period, amounting to approximately 62% of the country’s GDP by 2024.
The agency further explained that while the Kuwaiti government can still meet its financing needs due to its substantial assets, the approval of the law will broaden its financing options. This, in turn, will help ease liquidity pressures over time, reducing the burden on the public treasury and the General Reserve Fund.
Reform Plans
Fitch anticipates that Kuwait’s government debt levels will stay significantly lower than the projected 2026 average of around 51% of GDP for nations with an AA sovereign rating.
Moreover, Fitch emphasized that passing the financing and bonds law underscores the Kuwaiti government’s commitment to advancing long-awaited reform plans. She further explained that Kuwait’s credit rating could see an upgrade in the future if the country makes substantial progress in economic and financial reforms, particularly in diversifying revenue sources, optimizing expenditures, and reducing its heavy reliance on oil, which constitutes 90% of exports and 84% of government revenues, excluding investment income.
Excise Tax
Fitch noted that the Kuwaiti government has already implemented a 15% tax on multinational corporations operating in the country, aligning with OECD guidelines. The tax, which took effect at the beginning of this year, is set to be collected starting in 2027. According to Fitch, this measure is expected to contribute approximately 0.5% of Kuwait’s GDP annually to the state treasury.
The agency added that Kuwait’s financial authorities aim to introduce a selective goods tax in the long-anticipated fiscal year 2025. However, Fitch clarified that this tax is not factored into its baseline projections for government revenue forecasts or spending rationalization.
Fitch concluded that significant spending rationalization in Kuwait will remain a major challenge, given that government wages, subsidies, and welfare expenditures account for approximately 79% of total public spending.
The agency warned that without a substantial rebalancing of revenues and expenditures, Kuwait’s public finances could become vulnerable in the event of prolonged low oil prices, although this is not part of its baseline assumptions.
Source: Al Qabas
