Wealthy Gulf nation Kuwait is set to borrow for the first time in almost a decade, raising hopes that the petrostate will pursue an economic transformation to reduce its reliance on oil after lagging behind regional peers.
While Saudi Arabia and Abu Dhabi have set ambitious goals to diversify, spending heavily on everything from artificial intelligence to new cities, Opec’s fourth-largest exporter has remained reliant on oil revenues to fund its bloated welfare state with relatively little domestic investment.
But Kuwait this week passed a long-anticipated public debt law that will allow it to borrow for the first time in eight years, which should help finance major projects such as a new port and airport terminal and — officials say — start diversifying sources of government funding.
The country cannot have a “sustainable future” if oil remains the dominant revenue stream, Kuwait Petroleum Corporation’s chief executive Sheikh Nawaf S Al-Sabah, a member of the royal family, told the Financial Times ahead of the law being passed.
“The state budget will have to find different sources of revenue than oil,” Sheikh Nawaf said. “Budget increases and population growth require more expenditure than oil revenues can provide.”
Kuwait suffered a devastating invasion and occupation by neighbouring Iraq in 1990 and has fallen behind some of its Gulf peers.
Its massive oil receipts are gobbled up by the country’s welfare state, with government spending on public sector salaries and subsidies using up about 80 per cent of its budget.
It was one of the few countries in the Gulf that had a semblance of democracy, with a vibrant parliament in a region of absolute monarchies. But its economic pivot has been accompanied by an authoritarian turn.
Aiming to muscle through legislation such as the public debt law, which had been stymied by political opposition from lawmakers, Emir Sheikh Mishal Al-Ahmad Al-Jaber Al-Sabah last year suspended parliament and some articles of the constitution.
Critics argued that parliament had often obstructed development. Although Kuwait has the world’s oldest sovereign wealth fund, with an estimated $970bn in assets, lawmakers had opposed using these riches to fund government spending. Kuwait had a debt-to-GDP ratio of 3.2 per cent in 2023, according to the IMF.
The new law sets the maximum public debt limit at KD30bn ($97bn). “Passage of the debt law means Kuwait could tap international debt markets regularly — and in size — to fund its economic transformation,” said Carla Slim, an economist at Standard Chartered bank.
Yet like other Gulf nations, Kuwait has no intention of backing away from fossil fuels and plans to underwrite its infrastructure development with oil exports.
Kuwait is increasing production capacity from 3mn barrels per day to 4mn by 2035, anticipating that global demand for oil will stay at or above 100mn barrels per day for the next decade, Sheikh Nawaf said.
“Even if it does plateau and start to decline, we’re not projecting a rapid decline,” he said. Kuwait’s current export quota is 2.4mn barrels per day under Opec’s scheme to manage oil supply, but the cartel is set to unwind cuts next year.
To expand its oil industry, Kuwait has been actively exploring and made two major discoveries over the past year, adding oil and gas reserves equivalent to more than 4bn barrels of oil.
Sheikh Nawaf said KPC was working on developing oil-related industries, including petrochemicals, and had invested in some solar power generation at its production sites.
With growth crimped in their home market, big Kuwaiti companies have often looked to the rest of the region for growth. Agility, a major Kuwaiti logistics firm, listed on Abu Dhabi’s stock exchange last year.
But progress on the debt law has spurred optimism that Kuwait could finally be moving towards reforms. Boursa Kuwait’s premier market index hit a two-year high this month, and Kuwaiti stocks have outperformed Dubai and Riyadh’s markets so far this year.
Observers say Kuwait still has to come up with credible plans for spending the money it borrows, however.
Although it has earmarked mega projects such as its Mubarak Al-Kabeer port, is building a new terminal for its international airport and has launched extensive road renovations, some businesspeople say it is unclear what the overall plan for the economy is.
“The government needs to have clarity on the positioning,” said Abdulrahman Al Khannah, group chief executive of conglomerate BIG Holding, whose businesses include real estate to outsourcing and which listed last year. “Do we want to be the logistical hub of the region, to be the interconnect between China and the west? Do we want to be identified as a tourism country?”
Nonetheless, Khannah added that while “we aren’t at a similar pace to other countries . . . I think we have great momentum”.
