Kuwait moves closer to tapping debt markets to fund infrastructure

Cabinet backs draft public debt law

Historically had little need to borrow

Analysts expect ‘strong demand’ for bonds

Kuwait has moved a step closer to selling debt on the international markets again after the cabinet approved a draft decree that should help the country fund multibillion-dollar infrastructure projects.

Historically the country has had little need to borrow thanks to its oil revenue and relatively unambitious spending plans. Kuwait last sold dollar-denominated bonds in 2017 (see below).

Its debt-to-GDP ratio is less than 3 percent, comfortably the lowest in the Middle East, according to S&P Global Ratings.

However, Kuwait has now embarked on wide-ranging reforms to diversify its economy. The cabinet has approved a new public debt law, known officially as the financing and liquidity law. An earlier law has expired.

The legislation will proceed to the emir – the ruler of Kuwait – for ratification and should be enacted during the next fiscal year, according to Fitch Ratings.

Few details have been shared on the draft law, but an earlier version said the government could borrow up to KWD20 billion ($65 billion) over a 50-year period.

“We would expect to see strong demand for Kuwaiti bonds, considering a healthy credit rating and limited availability of outstanding government bonds in the market,” Sico Bank wrote in a note.

Monica Malik, chief economist at Abu Dhabi Commercial Bank, is also predicting “strong demand” for the bonds.

“It should be able to raise debt at very attractive pricing with a narrow spread to US treasuries,” she said.

In January, Kuwait’s finance minister revealed that about 370 projects with a combined value of $42 billion were listed in the country’s 2025-26 draft budget. Work on some of the projects has already begun, he said.

Raising debt will be crucial to financing these developments, with Kuwait’s budget deficit ballooning to 8.4 percent of GDP, according to S&P. 

It had a surplus of 11.7 percent of GDP in fiscal year 2022-23, according to the International Monetary Fund. The IMF attributes the subsequent swing into deficit to lower oil revenue and rising government spending.

Malik explained that the lack of a financing law for nearly a decade meant Kuwait’s general reserve fund had to cover its budget deficit. After the Covid-19 pandemic, the general fund had depleted almost all its assets.

“This created a liquidity crunch,” said Malik. “Even though Kuwait has very large reserves, the inability to raise debt really complicated the funding of its deficit.”

The debt law is the latest in a package of reforms from Kuwaiti policymakers. The government plans to impose a 15 percent tax on multinational companies.

Rules around foreign ownership of real estate are also being relaxed and the residential mortgage market may be opened up to local banks, ending the monopoly of the state-run Kuwait Credit Bank.