Kuwait returns to borrowing in push for a post-oil future
While Saudi Arabia and Abu Dhabi have set ambitious goals to diversify their economies, Kuwait has remained reliant on oil revenues to fund a bloated welfare state with relatively little domestic investment.
● Kuwait, a wealthy Gulf state, is turning to borrowing in an effort to catch up with Saudi Arabia and Abu Dhabi in the UAE, which are investing heavily in everything from artificial intelligence to new cities, the Financial Times reported.
● Kuwait’s welfare state is depleting its substantial oil revenues, with public sector salaries and subsidies consuming approximately 80% of the budget. The newly passed public debt law sets the maximum public debt at $97 billion.
The Financial Times reported that Kuwait is seeking to borrow for the first time in nearly a decade, raising hopes for an economic shift to reduce its reliance on oil after falling behind its regional peers, according to Al Qabas newspaper.
The report stated that Kuwait, a wealthy Gulf state, is turning to borrowing in an effort to catch up with Saudi Arabia and the United Arab Emirates (UAE).
“While Saudi Arabia and Abu Dhabi have set ambitious goals to diversify their economies, investing heavily in everything from artificial intelligence to new cities, Kuwait—OPEC’s fourth-largest exporter—has remained reliant on oil revenues to fund a bloated welfare state with relatively little domestic investment,” the reported added.
The newspaper noted that Kuwait passed a long-awaited public debt law this week, allowing it to borrow for the first time in eight years. This will help finance major projects such as a new port and airport, as well as efforts to diversify government funding sources.
For his part, Sheikh Nawaf Al-Sabah, CEO of the Kuwait Petroleum Corporation, told The Financial Times prior to the law’s passage that “the country cannot enjoy a sustainable future if oil remains the primary source of revenue.”
Sheikh Nawaf added, “The state budget must find sources of income beyond oil,” noting that rising budget demand and population growth require greater spending than oil revenues alone can sustain.
Kuwait’s welfare state is depleting its substantial oil revenues
According to the newspaper, Kuwait’s welfare state is depleting its substantial oil revenues, with public sector salaries and subsidies consuming approximately 80% of the budget.
The newly passed public debt law sets the maximum public debt at KD 30 billion Kuwaiti ($97 billion).
In turn, Carla Slim, an economist at Standard Chartered Bank, stated, “The passage of the debt law means that Kuwait can tap international debt markets regularly—and in large quantities—to finance its economic transformation.”
No plans to abandon fossil fuels
However, like other Gulf states, Kuwait has no plans to abandon fossil fuels and intends to finance infrastructure development through oil exports, the newspaper reported.
Despite this, progress on the debt law has fueled optimism that Kuwait may finally be moving toward reform, with the main Kuwait Stock Exchange index reaching a two-year high this month and Kuwaiti stocks outperforming those in Dubai and Riyadh so far this year.
Observers say Kuwait still needs to develop credible plans for allocating the borrowed funds.
While major projects such as Mubarak Al-Kabeer Port, a new terminal at Kuwait International Airport, and large-scale road renovation initiatives have been announced, some economists argue that the broader economic strategy remains unclear.
