Kuwait struggles to diversify income sources amid budget debates

• Reducing the reliance on oil will not happen overnight, as it requires extensive economic reforms that economists and consulting firms have advocated for years. These reforms should follow a clear vision that successive governments uphold and defend without yielding to pressure.

For over 58 years, calls for diversifying income sources—reducing reliance on oil, a depleting resource—have echoed, especially during state budget approvals.

With oil revenues making up at least 84% of total income even in the best times, discussions intensify annually but fade once the budget is passed, only to resurface with the next cycle, the Al Jarida newspaper reported.

The obsession with relying on a single source of income, as observers see it, did not emerge recently or even in the past few decades but dates back to the first decade of the modern state. However, the situation today is markedly different, with rising expenditures and oil revenues struggling to cover them, while the budget remains heavily dependent on oil.

Reducing this reliance will not happen overnight, as it requires extensive economic reforms that economists and consulting firms have advocated for years. These reforms, they argue, should follow a clear vision that successive governments uphold and defend without yielding to pressure.

Reforms must to generate alternative sources of income

Highlighting oil revenues from the final accounts of the last five fiscal years (2019/2020–2023/2024), oil constituted 89.7% of total revenues, according to a newspaper analysis. The total revenue from oil amounted to KD 88.58 billion, making it vulnerable to fluctuations in oil prices, regional geopolitical turmoil, and threats to the sole oil export route through the Arabian Gulf.

Reviewing past government statements on “guarantees available to ensure financial flows if the price of oil falls below the budget’s equilibrium price,” the Ministry of Finance clarified that these guarantees include withdrawals from the general reserve to cover the deficit, as well as the approval of the draft public debt law. This law would allow the government to secure public loans and financing from local and international markets to help offset the deficit.

The ministry emphasized that public debt is not a permanent solution to the deficit but rather a temporary measure to navigate financial difficulties until public finances achieve stability and sustainability. It also announced that it is preparing a comprehensive financial and economic reform plan.

In 2020/2021, oil revenues dropped by 43%

Reviewing oil revenues in the final accounts, they amounted to KD 15.36 billion in the 2019/2020 fiscal year, while the budget stood at KD 21.14 billion. In 2020/2021, oil revenues dropped by 43% to KD 8.79 billion, while the budget increased slightly to KD 21.29 billion, largely due to the global economic impact of the COVID-19 pandemic.

With the economy reopening and oil prices nearly doubling from $42.36 per barrel in 2020/2021 to $80.7 per barrel in 2021/2022, oil revenues rebounded to KD 16.21 billion, while the budget rose to KD 22.95 billion.

Oil revenues surged by 65% to reach KD 26.7 billion

The upward trend continued in 2022/2023, with oil revenues surging by 65% to KD 26.7 billion, as oil prices climbed to $97.7 per barrel. This resulted in an exceptional surplus of KD 6.3 billion, the first after years of consecutive deficits.

However, the situation quickly normalized in 2023/2024, with oil revenues falling to KD 21.52 billion, the budget reaching KD 25.2 billion, and oil prices declining to $84.36 per barrel, leading to a return to deficit.