The National Bank of Kuwait (NBK) report stated that the government has recently approved the draft budget for the fiscal year 2025/26, projecting a deficit of KWD 6.3 billion (13% of GDP), up from KWD 5.6 billion in the 2024/25 budget.
While current expenditures remain close to previous levels, overall spending remains high, underscoring the urgent need for structural reforms to ensure the long-term sustainability of public finances.
The report highlighted expectations of a decline in oil revenues, driven by the assumption that oil prices will decrease, outweighing the anticipated growth in non-oil revenues. The year 2025 is expected to be a pivotal moment for public finances, as the government prepares to implement various measures to enhance liquidity, boost non-oil revenues, and rationalize spending. In this context, the current budget serves as a preliminary step toward deeper financial adjustments in the future.
The 2025/26 fiscal year budget estimates total expenditures at KWD 24.5 billion, marking a slight decrease of 0.1% compared to the previous budget. This reflects a modest pace of expenditure control while maintaining the government’s commitment to the previously announced spending ceiling. The budget details indicate a 1.6% increase in employee bonuses, offset by declines in support allocations (-2.2%), other expenditures (-3.7%), and capital expenditures (-1.7%).
The decline in capital spending extends a four-year downward trend, despite the pressing need to accelerate infrastructure development in alignment with Kuwait Vision 2035. Structural challenges persist, with wages and subsidies accounting for approximately 80% of total expenditures, while capital expenditure continues to shrink (9.1%), highlighting the slowdown in investment in development projects. Liquidity constraints may have also played a role in limiting capital spending in recent years.
Oil Revenues
The report highlighted that the 2025/26 fiscal year budget anticipates a decline in oil revenues to KWD 15.3 billion (-5.7% y-o-y), driven by a lower assumed oil price of $68 per barrel, down from $70 in the previous budget, alongside a slight drop in oil production to 2.50 million barrels per day from 2.55 million barrels per day.
Conversely, non-oil revenues are projected to grow by 9% year-on-year, reaching a record KWD 2.9 billion, supported by new government revenue-boosting measures. The introduction of a new income tax on large multinational companies in January 2024, aligning with the OECD initiative, is expected to raise tax revenues to KWD 250 million—up from KWD 160 million in the 2024/25 budget, according to Ministry of Finance estimates.
The fiscal reform measures also include the introduction of a new traffic law with stricter penalties for violations, set to take effect in April. Additionally, a new law will grant ministries the authority to re-price government service fees—subject to cabinet approval—covering property rents, as well as administrative, judicial, health, and other government services.
Law of Religion
The report noted that the new public debt law is nearing its final stages and is expected to be approved soon. This will enable the government to re-enter the bond market for the first time since the previous law expired in 2017. According to media sources, the new law is anticipated to permit the issuance of debt instruments worth KWD 20-30 billion over a period of 50 years, taking advantage of Kuwait’s low public debt levels (with outstanding debts not exceeding KWD 1.4 billion) and low debt service costs compared to other countries in the region.
The law is also expected to be followed by legislation regulating withdrawals from the Future Generations Fund, Kuwait’s sovereign wealth fund, which currently has assets exceeding $1 trillion, according to a recent report by the Sovereign Wealth Fund Institute (SWFI). These reforms aim to enhance the country’s financial liquidity, providing more financial flexibility to finance the deficit and increase capital expenditures in future budgets. This comes in light of the ongoing pressure on the state treasury, which has been the sole source of financing the deficit in recent years.
New Budget
The National Bank report highlighted that, despite a slight increase in employee wages and the stability of current expenditure rates with no significant changes, the momentum driving private consumption growth remains limited. On the other hand, the marginal decrease in capital expenditure allocations reflects a reduction in investment support, although there is a potential for increased actual spending, particularly given the ongoing gap between budgeted allocations and actual spending levels observed in recent years.
Overall, the report emphasized that this budget is unlikely to be expansionary unless it coincides with an acceleration in the implementation of capital projects. However, controlling expenditures and generating new sources of income, even if modest, may signal the start of a phase of more significant financial adjustments in the future.
Accelerating the pace of legislative reforms
The National Bank report highlights that the pace of legislative reforms has picked up this year, setting the stage for a series of financial and economic amendments awaiting final approval from the Council of Ministers. These reforms include the restructuring and merging of government units, updating privatization and public-private partnership laws, and revising the mortgage law. The re-pricing of services law is expected to have significant financial implications, especially with the potential gradual elimination of energy and water subsidies, which are major expenditure items. This approach mirrors successful initiatives implemented by Saudi Arabia and the UAE.
Source: Al Qabas
