Kuwait eyes $20 billion borrowing as public debt law nears approval

• As part of efforts to improve Kuwait’s credit rating and borrowing conditions, boosting investor and creditor confidence both locally and globally, sources said the approval of the public debt law is imminent.

• The ‘public debt’ facility will be utilized in phases, not all at once, with the state’s financial requirements to cover deficits or finance development projects guiding the size of debt issuance, influenced by economic conditions.

• Kuwait’s strong financial position and low debt levels make approving the public debt law a necessary reform to secure financing for rapidly advancing development projects in the annual budget.

As part of broader government efforts to enhance Kuwait’s credit rating and borrowing conditions, boosting investor and creditor confidence both locally and internationally, government sources told Al-Rai newspaper that approval of the draft public debt law is imminent.

The sources noted that the legislation is in advanced stages, with the most likely scenario permitting the government to borrow KD 20 billion over 50 years.

The anticipated debt structure includes bonds and sukuk, with the allocation between local and international issuance determined by interest rates, available liquidity in Kuwaiti banks, and their capacity to meet financing needs across various economic sectors.

They indicated that the ‘public debt’ facility will be utilized in phases, not all at once, with the state’s financial requirements to cover deficits or finance development projects guiding the size of debt issuance, influenced by economic conditions.

Need to secure financing for capital expenditures

While emphasizing Kuwait’s strong financial position, substantial wealth, and low debt levels, the sources highlighted that preparing to approve the public debt law has become a necessary reform. This is driven by the need to secure financing for capital expenditures aimed at funding development projects included in the annual budget, which are planned to proceed more rapidly and at higher costs.

Developing financial markets

The sources pointed out that the urgency of approving the ‘public debt’ law is increasing due to the state’s need to strengthen its financing capacity, develop financialmarkets, and enhance the General Reserve Fund, especially after the previous public debt law expired.

They noted that the ‘public debt’ could be used to refinance or replace existing debt, including scheduled payments until 2027/2028, such as approximately KD 1.42 billion due by 2027, with KD 1.37 billion of international debt maturing in March 2027, and KD 50 million of local debt due on June 9, 2027.

Public debt to shield Kuwait’s economy from financial shocks

The sources stressed the importance of the ‘public debt’law at this stage for several reasons, foremost among them being its role in ensuring borrowing is managed in a way that avoids long-term financial problems. It also helps protect the national economy from financial shocks and speculation, while contributing to the development of debt markets. This, in turn, assists the private sector in building a yield curve that can serve as a reference for pricing other financial assets, particularly debt.

The sources added that one of the government’s goals with ‘public debt’ is to regulate liquidity levels, localize savings, and enhance the government’s ability to meet its financing obligations in the coming years, with various safeguards in place.

Public debt to bolster the issuance of sovereign sukuk

The sources mentioned that the government is relying on ‘public debt’ to bolster the issuance of sovereign sukuk, which are vital in the Gulf. It also allows the state to borrow through the issuance of international bonds, easing pressure on the liquidity of the General Reserve Fund.

Additionally, this approach contributes to increasing the flexibility of the sovereign credit rating, mitigating the risks posed by oil price fluctuations and the long-term shift away from oil, especially in light of Kuwait’s lack of a comprehensive financing strategy.

Future outlook of international agencies

Sources added that the classification of Kuwait and the future outlook of international agencies on the state’s financial capabilities suggest the likelihood of securing sovereign loans at competitive interest rates compared to those available in the region.

This is an additional factor supporting the imminent approval of the “public debt” law, which is part of the government’s comprehensive efforts to complete the public finance reform system and ensure the sustainability of institutions and the welfare of citizens.

Moody’s maintained Kuwait’s rating at ‘A1’ with a stable outlook

It is worth noting that Moody’s has maintained Kuwait’s rating at ‘A1’ with a stable outlook, highlighting that Kuwait’s strong rating reflects the continued strength of its general budget and financial position in the foreseeable future, along with macroeconomic stability and external balances.