Kuwait’s debt grows by KD 1.3 billion amid lack of economic roadmap
The Finance Ministry’s non-binding pledge to direct debt towards “projects,” alongside Fitch’s projection that 70% will cover deficits, highlights how falling oil prices drive increased borrowing under rising market pressures.
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The real challenge lies not in the size, pricing, or repayment of public debt, but in ensuring transparent, efficient, and purposeful spending—something Kuwait failed between 2014 and 2020 when reserves and loans funded unsustainable operations.
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Despite billions spent, neither oil surpluses nor debt achieved real reform; repeating this by funding current expenditures would raise borrowing costs, erode flexibility, and worsen challenges as oil revenues face growing pressure.
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In Kuwait, the enactment of the Financing and Liquidity Law and the resumption of borrowing were not accompanied by a clear economic plan to ensure the proper use of debt. Conflicting statements about the purpose of the new borrowing have fueled concerns about transparency.
Data from the Central Bank of Kuwait shows that the country has borrowed around KD 1.3 billion over the past three months through domestic debt issuances, with maturities of one to ten years and interest rates ranging from 4.375 to 5.375 percent. Demand for these issuances was six to twelve times the supply, reported Al Jarida newspaper.
These issuances follow the approval of Law No. 60 of 2025 on Financing and Liquidity (Public Debt), nearly eight years after the last sovereign debt in 2017. The law permits borrowing up to KD 30 billion with maturities of up to 50 years. Observers have raised concerns about the allocation of these funds and whether they will support economic, financial, and developmental reforms, Al Jarida newspaper reported.
The difference between the two models
Public debt is a financing tool used by most countries worldwide to provide liquidity and support economic development projects. Sovereign debt issuances fuel major economies such as the United States, Japan, the United Kingdom, and the European Union. At the same time, debt mismanagement has led to collapses or severe crises in countries like Greece, Venezuela, Argentina, Lebanon, and Egypt. The difference between these two models lies not in the borrowing itself, but in the quality of public administration and how borrowed funds are directed to achieve tangible economic benefits in the medium and long term.
In Kuwait, the enactment of the Financing and Liquidity Law and the resumption of borrowing were not accompanied by a clear economic plan to ensure the proper use of debt. Conflicting statements about the purpose of the new borrowing have fueled concerns about transparency.
The Ministry of Finance announced that funds would be directed to capital projects in the 2025/2026 budget, valued at KD 2.3 billion. However, the law, as published in the Official Gazette, listed broader uses: repaying obligations, covering budget deficits, refinancing existing debt, and only in part supporting capital projects.
This contradiction between official statements and the legal text has raised questions about the government’s priorities. A report by Fitch Ratings further indicated that Kuwait plans to finance 70 percent of its projected KD 6.3 billion deficit through public debt issuance.
Measuring quality
The real measure of financial quality is not simply spending on projects or tenders. Effective spending should address structural imbalances by generating non-oil revenues, creating private-sector jobs for Kuwaitis, boosting the productive private sector’s share of GDP, and attracting foreign investment and technology. By contrast, directing debt funds to cover current expenditures is a negative practice that heightens risks to both public finances and the economy as a whole.
Depletion and pressures
Between 2014 and 2020, Kuwait depleted the entire liquidity of its General Reserve, conducted a cash-for-asset swap with the Future Generations Reserve Fund worth KD 60 billion, and issued a sovereign loan of $8 billion in 2017. All these resources were used to finance budget deficits or cover off-budget expenditures.
Neither oil surpluses nor sovereign borrowing were directed towards meaningful economic reform, despite the billions spent from public finances. Repeating the same approach by channeling new debt into current or non-essential expenditures would only compound past mistakes. This would not only raise borrowing costs but also weaken flexibility in addressing evolving financial and economic challenges, particularly amid mounting pressures on oil revenues.
Oil, Kuwait’s main and almost exclusive source of income, faces both support and risk. Prices have been temporarily bolstered by stalled negotiations over the Russia-Ukraine war and regional tensions in the Middle East. Yet, they remain under downward pressure from rising OPEC+ production and U.S. energy policies aimed at keeping global oil prices low.
As of Wednesday, the price of Kuwaiti crude stood at $70.45 per barrel—roughly $20 below the break-even level projected in the 2025/2026 budget and only $2.4 above the conservative base price set in the same budget. Earlier this year, prices even dipped below that conservative estimate. Based on current trends, the fiscal deficit is expected to reach KD 5 to 6 billion in 2025/2026.
To bridge this gap, the Ministry of Finance has announced borrowing plans of KD 3 to 6 billion this year, of which KD 1.3 billion has already been raised. The more oil prices face pressure in the absence of real reform, the more Kuwait will need to borrow—though at higher costs and under tougher market conditions.
Quality and prudence
Effective management of public debt depends more on transparency, proper allocation, and addressing economic imbalances than on the size, cost, or maturity of issuances. Kuwait no longer enjoys the cash flexibility once provided by oil surpluses, and current oil prices offer little relief. This reality makes prudent debt management essential to avoid falling into the sovereign debt trap that has burdened many nations, ensuring borrowing supports long-term stability rather than worsening financial vulnerabilities.
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