Kuwait poised for growth in 2025, powered by economic reforms

• In 2024, a shift in Kuwait’s economic direction began to change as the new government in the country implemented plans to boost growth, prioritizing faster project execution and stricter fiscal measures.

• Hermes believes that a moderate and gradual reform path will create a positive atmosphere in the stock market, especially since the Kuwait Stock Exchange has recorded the second-best performance in the region so far this year.

• Kuwait is focused on fast-tracking $26 billion worth of projects, primarily in water and energy, to stimulate credit growth and address recent energy shortages.

EFG Hermes reported that Kuwait could emerge as a potential dark horse in 2025, fueled by the government’sgradual economic reforms. As these reforms begin to show results, Kuwait is expected to become a rising market next year, according to Al Rai newspaper.

The Hermes report noted that Kuwait starts from a low base of economic growth, with a strong budget and the lowest level of public debt in the Gulf, highlighting that Kuwait’s economic performance has been significantly weaker than regional economies over the past decade.

However, this trend began to shift in 2024 after major changes took place, as the new government started implementing plans and actions to boost growth, focusing on accelerating project execution and tightening fiscal measures.

Rising spending and lack of reforms strain Kuwait’s budget resources

Hermes believes this is crucial for building public trust ahead of necessary financial reforms, which will be key to sustaining the potential investment cycle. The report explains that the rise in current spending and the absence of financial reforms in recent years, combined with limited debt issuance capacity, have depleted government resources for budget financing.

Although the government has not yet released its economic program, which will outline its focus areas and key policies, Hermes believes that a moderate and gradual reform path will create a positive atmosphere in the stock market, especially since the Kuwait Stock Exchange has recorded the second-best performance in the region so far this year, following several years of poor performance.

Accelerating the awarding and implementation of projects

In this context, Hermes noted that it is focused on accelerating the awarding and implementation of projects to stimulate credit growth, which has been sluggish in the past two years following a strong recovery from the COVID-19 pandemic.

A portfolio of projects worth eight billion dinars ($26 billion) is in the final stages of being awarded, primarily in the water and energy sectors, as the government works to address the energy shortages experienced this summer.

Meanwhile, the announcement of the budget for the 2025/2026 fiscal year, expected in the second quarter of 2025, will be a key event to monitor. Any signs of fiscal policy tightening should be closely watched, whether through a smooth path to rationalize spending or an accelerated course of financial reforms, particularly on the revenue side. The latter is essential for creating fiscal space to boost capital spending.

Approval of the housing law

The report also highlighted the approval of the housing law, which Hermes believes offers a reasonable opportunity for the government to stimulate economic activity without putting undue pressure on financial balances. The long-awaited legislation will involve the private sector in real estate financing, at a time when the public sector is burdened with unmet demands.

Oil prices expected to hit $75 per barrel in 2025

According to Hermes’ forecasts, the price of oil is expected to reach $75 per barrel in 2025, a level considered high enough to sustain the expansionary fiscal positions of governments in the region. The report explains that even the countries most vulnerable to low oil prices, particularly Saudi Arabia and Kuwait, have sufficient resources to manage any short-term oil price shocks.

Kuwait more exposed to risk of falling oil prices in financial terms

Hermes further stated that Kuwait is more exposed to the risk of falling oil prices in financial terms, as the budget’s oil price benchmark is $82 per barrel. Without fiscal reforms, the country may struggle to implement an effective investment plan.

The budget will also remain constrained without the public debt law, as government funding will remain limited, especially given the low level of reserves available to the Ministry of Finance, which cannot access the Future Generations Fund, worth approximately $900 billion.

Qatar, Saudi Arabia, and Kuwait most affected by corporate tax

Hermes noted media reports that the Kuwaiti government is considering imposing a tax on multinational companies starting in January, with plans to expand the tax to include all companies with revenues exceeding 1.5 million dinars by 2027.

Regarding the countries most affected by this tax, Hermes ranked Qatar first, followed by Saudi Arabia, Kuwait, and the United Arab Emirates.

The report explained that Qatar would be the most affected, as companies there currently pay little to no income taxes. It is believed that the tax may only be imposed on large companies, rather than across all sectors. Saudi companies, which currently pay a zakat of just 2.5% of their income, will also be negatively impacted, while Kuwaiti companies, which pay 4.5% in taxes or fees, will face a tax increase of about tenpercentage points.

0.5 percent expected interest rate cut in Kuwait

Hermes expects Qatar, the UAE, Saudi Arabia, and Oman to follow the US Federal Reserve’s lead in reducing interest rates, unlike Kuwait, where the Central Bank is likely to cut the discount rate by 50 basis points.

It was also noted that the growth in individual loans in Kuwait has slowed, as investors await the peak of the interest rate cycle.