Kuwait’s cabinet approved a draft decree that paves the way for the OPEC-member Gulf state to sell international debt for the first time in eight years.
The Council of Ministers approved a law on “financing and liquidity,” according to a statement released after Thursday’s meeting, in reference to a public debt law. There were no details provided.
The long-awaited decree, presented to the government by Finance Minister Noura Al-Fassam, has been referred to Kuwait’s ruler, Sheikh Mishaal Al-Ahmed Al-Sabah, who has to approve all laws.
The original draft law stipulated enabling as much as 20 billion dinars ($65 billion) to be raised over 50 years, people familiar with the matter told Bloomberg in January. The debt cap could be raised in the final draft since previous proposals had suggested a limit of 30 billion dinars, the people said at the time.
“Better late than never,” said Bader Al Saif, an assistant professor at Kuwait University and an associate fellow at Chatham House. “Kuwait’s potential is real and immense. But in the absence of a bold and urgent set of actions, the country’s potential will soon dissipate.”
A public debt bill has been held up for years by political wrangling, making it impossible for successive governments to borrow. That’s forced them to rely on the General Reserve Fund, or treasury. Kuwait would tap international markets mainly to fund key development projects, and to help plug its fiscal deficit if needed.
The Gulf nation is a key US ally in the Middle East, one of the world’s biggest oil exporters and home to a sovereign wealth fund valued at around $1 trillion. The country’s last issuance was an $8 billion five- and 10-year deal in March 2017, just days before the previous debt law expired
The longer notes, maturing in 2027, trade with a yield of around 4.75%, roughly in line with the likes of neighboring oil-rich governments Abu Dhabi, Qatar and Saudi Arabia, and 200 basis points below the average for emerging-market sovereign debt.
“I expect there to be strong demand for Kuwait’s return to the Eurobond market after an eight year absence,” said Fady Gendy, a fixed-income portfolio manager at Arqaam Capital Ltd. in Dubai.
Kuwait has little external debt and is rated A1 by S&P Global Ratings, in line with China and Japan.
Kuwait’s emir suspended parliament for four years in May, effectively clearing the way for the government — headed and appointed by the ruling Al-Sabah family — to pass key bills. It has the Gulf Cooperation Council’s only elected parliament, creating a pluralism that presented its own challenges.
Political dysfunction has plagued the country and stymied development for years, deterring foreign investment, thwarting fiscal reform and hindering efforts to diversify the oil-reliant economy.
Once enacted, the new law would allow Kuwait to issue both conventional bonds and Islamic Sukuk, according to the people, who also said Kuwait would tap bond markets only when required.
