Kuwait’s Growing Fiscal Challenges and Borrowing Needs
Kuwait is anticipated to emerge as a significant borrower within the region in the coming years, primarily due to a widening fiscal gap exacerbated by low oil prices and substantial allocations for public employee salaries and social programs. According to a recent report by S&P, the country’s budgetary deficit is projected to increase sharply from its relatively modest level in 2024, significantly impacting fiscal stability.
Projected Deficit Trends
From 2025 to 2028, Kuwait’s fiscal deficit is expected to average around 8.9% of its GDP. This projection stems from declining crude oil revenues and escalating public expenditure. The deficit for the fiscal year 2025-2026, which commenced on April 1, is forecasted to reach nearly 14%, a substantial increase from just 2% in 2024.
While specific deficit figures were not disclosed in the report, Kuwait’s GDP was approximately $163 billion in 2024. The National Bank of Kuwait (NBK) forecasts that this figure could rise by one to four percent over the next three years, barring significant fluctuations in the oil market. This would position the GDP between $165 billion and $170 billion, with an anticipated average budget deficit of around $15 billion during this period.
Strategies for Maintaining Credit Ratings
Kuwait, alongside other Gulf nations, is implementing strategies to uphold a robust financial buffer aimed at preserving its strong credit rating. Economist Ihsan Buhlaiga pointed out that these countries focus on bolstering their overseas assets, particularly through sovereign wealth funds. This approach allows them to finance budget deficits primarily through borrowing rather than liquidating these assets.
Officials recently indicated that Kuwait might seek to borrow between $10 billion and $20 billion throughout the 2025-2026 fiscal year, following the approval of a debt law in March. There are indications that the country could issue its inaugural debt tranche shortly, as the government has cleared the framework for borrowing.
Economic Implications of Borrowing
Analysts suggest that if oil prices remain below the benchmark of $70 per barrel, as projected in Kuwaiti budgets, borrowing momentum could continue in the coming years. The limited revenue from alternative sources exacerbates this situation. For context, non-oil revenues are estimated to contribute only around KWD2.6 billion ($8.5 billion) of the anticipations for the 2025-2026 budget, which totals KWD18.9 billion ($62 billion).
The allocation for salaries is also substantial, consuming approximately KWD14.8 billion ($49 billion) out of a total budgeted expenditure of about KWD24.5 billion ($81 billion)—nearly 60% of the budget. In addition, subsidies are projected to account for KWD4.5 billion ($14.8 billion), about 18% of total spending.
Budget Allocations and Infrastructure Spending
In light of these figures, the Finance Ministry reported that capital expenditures would decline by approximately 1.7% in the new budget, while allocations for wages and social aid are set to increase by nearly 9.1% compared to the previous budget. This ongoing reduction in capital spending has persisted for four years, despite a pressing need for investment in infrastructure projects aligned with Vision 2035.
Kuwait officials revealed that funds raised through borrowing this year are expected to primarily support infrastructure projects with a collective value exceeding $7 billion. This shift underscores the critical need for enhanced funding to facilitate development in key sectors, despite the overarching budgetary constraints.
As Kuwait navigates these fiscal challenges, the focus on borrowing to fund vital projects while managing a substantial public wage bill paints a complex economic landscape for the nation in the years ahead.
