Kuwait could face an even larger budget deficit in the current fiscal year (2026/2027) than the KD7.1 billion shortfall recorded in the previous fiscal year, with continued dependence on oil revenues and a sharp increase in capital outflows exposing deep structural weaknesses in the economy, according to the latest Al-Shall Economic Report.
The report warns that while the current fiscal year has been affected by extraordinary circumstances including disruptions to oil production following the closure of the Strait of Hormuz the country’s fiscal challenges are far from temporary.
Deficits becoming the norm
Al-Shall noted that Kuwait has recorded budget deficits in 10 of the past 15 fiscal years, with cumulative net deficits reaching KD 42.5 billion during that period.
According to the report, this trend demonstrates that the sustainability of Kuwait’s public finances, economy and labour market remains overwhelmingly dependent on the volatile global oil market. It stressed that repeated discussions on economic reform would remain ineffective unless they are translated into tangible action aimed at diversifying national income sources beyond oil.
Oil prices remain favourable, but revenues disrupted
The report observed that June marked the end of the third month of the current fiscal year. During June, the average price of Kuwaiti crude reached approximately US$91.70 per barrel, exceeding the budget’s assumed oil price of US$57 per barrel by nearly 61 percent.
The June average was also significantly higher than the previous fiscal year’s average of US$72.20 per barrel and slightly above the Finance Ministry’s estimated fiscal breakeven oil price of US$90.50 per barrel.
However, despite higher oil prices, Al-Shall cautioned that these figures do not accurately reflect the government’s actual financial position because of the continuing disruptions caused by the partial closure of the Strait of Hormuz.
The report said Kuwait’s financial performance cannot fully recover until the strategic waterway resumes normal operations and the country restores oil production to its allocated OPEC quota.
Lack of official data criticised
Al-Shall sharply criticised the suspension and delay in publishing key official economic statistics, arguing that transparent and timely data become even more essential during periods of crisis. The report recalled that Kuwait had previously halted publication of GDP figures for an extended period during the COVID-19 pandemic. It also pointed to the Ministry of Finance’s suspension of its monthly reports on state financial accounts, leaving policymakers and investors without up-to-date fiscal information.
It noted that delays also affect other important indicators, including population statistics, employment data and external financial balances. The report questioned how effective economic policy could be formulated without reliable, current and comprehensive statistical information.
Oil production gradually recovering
Al-Shall acknowledged encouraging signs regarding Kuwait’s oil production recovery. It cited earlier statements by Kuwait Petroleum Corporation officials indicating that the country could restore approximately 70 percent of its previous production capacity around 1.8 million barrels per day within six to eight weeks.
Supporting this assessment, an OPEC+ report issued on July 13 estimated Kuwait’s June production at approximately 1.452 million barrels per day, suggesting gradual improvement.
Three major obstacles remain
Despite the production recovery, the report identified three major factors limiting Kuwait’s oil revenues:
- Continued uncertainty over the opening and closing of the Strait of Hormuz, disrupting export operations.
- Around 500,000 barrels per day are consumed domestically and therefore are not sold at international market prices.
- Production costs have increased due to ongoing rehabilitation and restoration work at oil facilities, reducing net export earnings.
As a result, Al-Shall believes Kuwait is unlikely to realise the full financial benefit of recovering production levels in the near term.
Foreign investment paints troubling picture
Perhaps the report’s strongest warning relates to Kuwait’s deteriorating investment environment. According to Al-Shall, foreign direct investment (FDI) inflows continued to weaken sharply. After declining by 70.9 percent in 2024 compared with 2023, inward FDI fell by another 19.1 percent during 2025.
More alarming, however, was the scale of capital leaving Kuwait. The report revealed that outward direct investment reached approximately US$36 billion during 2025 around 3.5 times higher than in 2024 and roughly 72 times greater than foreign investment entering the country.
Over the past five years, Kuwait attracted approximately US$4.5 billion in foreign direct investment while domestic investors placed nearly US$86.7 billion abroad.
This resulted in a net investment gap of approximately US$82.2 billion, with 2025 recording the highest outward investment on record.
Capital flight signals deeper structural issues
Al-Shall argued that these figures reveal more than weak investment performance they point to serious concerns about Kuwait’s business environment. The report said the data demonstrates the country’s limited success in attracting international investors while simultaneously encouraging local investors to move their capital overseas.
It emphasised that official efforts to promote Kuwait through meetings with international corporations cannot substitute for addressing the underlying reasons why Kuwaiti investors themselves increasingly prefer investing abroad.
“The numbers neither flatter nor deceive,” the report said, stressing that retaining domestic capital should be the government’s first priority. It concluded that unless policymakers can gradually restore confidence among Kuwaiti investors and persuade them to invest at home, foreign investment inflows are likely to remain limited regardless of incentives offered to overseas investors.
