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The wealthy Gulf state Kuwait is set to borrow for the first time in almost a decade and hopes that Petrostate will pursue economic transformation to reduce its dependence on oil after its local peers have fallen behind.
While Saudi Arabia and Abu Dhabi have set ambitious goals that are heavily spent on everything from artificial intelligence to new cities, OPEC’s fourth-largest exporter relies on oil revenues to fund a bloated welfare state with relatively little domestic investment.
However, this week, Kuwait passed a long-standing public debt law that allows them to borrow for the first time in eight years.
If oil is the dominant source of income, the country cannot have a “sustainable future,” said Sheikh Nawaf S. Al Sabah, a member of the royal family, who is the chief executive of the Kuwait Oil Corporation, the Finance Times was passed ahead of the law.
“The state budget needs to find a different source of income than oil,” Sheikh Nawaff said. “Increasing budgets and increasing populations require more spending than oil revenue can provide.”
Sheikh Nawaf S Al-Sabah says Kuwait Petroleum Corporation has invested in several solar power generation at its production site ©Aaron M. Sprecher/Bloomberg
Kuwait suffered catastrophic invasion and occupation by neighboring Iraq in 1990, falling behind some of its Gulf mates.
Kuwait’s massive oil receipts have been dominated by the country’s welfare state, with the government running out about 80% of its budget for public sector salaries and subsidies.
It was one of the few countries in the Gulf, with democratic similarities and a vibrant parliament in an area of absolute monarchy. But that economic pivot came with an authoritarian turn.
Aiming for muscle through laws like the Public Debt Act, which was blocked by political opposition from lawmakers, Emir Mishal Al Ahmad Al Jabba al-Sabah suspended Congress and several constitutional provisions last year.
Critics argued that Congress often hampered development. Kuwait is home to the world’s oldest sovereign wealth fund, with an estimated $970 billion in assets, but lawmakers opposed using these wealth to fund government spending. According to the IMF, Kuwait had a debt ratio of 3.2% in 2023.
The new law sets the largest public debt limit at KD3 billion ($97 billion). “With the passage of the Debt Act, Kuwait can regularly fund the international debt market and economic transformation of scale,” said Cara Slim, economist at Standard Chartered Bank.
But like other Gulf countries, Kuwait is not planning to retreat from fossil fuels, and will take on infrastructure development through oil exports.
Kuwait has increased its production capacity from 3 million barrels per day to 4 million by 2035, and it expects global demand for oil to remain at more than 100 million barrels for the next decade, Sheikh Nawaf said.
“Even if it plateaus and starts to decline, we don’t expect a rapid decline,” he said. Kuwait’s current export quota is 2.4 million barrels per day based on OPEC’s scheme to manage oil supply, but the cartel is set to be cut next year.
To grow the oil industry, Kuwait has actively researched and made two major discoveries over the past year, adding oil and gas reserves worth 4 billion barrels of oil.
Sheikh Nawaf said KPC is working on developing oil-related industries, including petrochemists, and has invested in several solar power generation at its production site.
With growth overwhelmed by the home market, large Kuwaiti companies often seek growth in the rest of the region. Agility is Kuwait’s leading logistics company listed on the Abu Dhabi stock exchange last year.
But advances in debt law have fueled optimism that Kuwait may ultimately be moving towards reform. Boursa Kuwait’s premium market index has been on the rise for two years this month, with Kuwait’s stocks outperforming Dubai and Riyadh markets so far this year.
Observers say they still need to come up with a reliable plan for Kuwait to spend the money they borrow.
Kuwait has allocated megaprojects like Mubarak Al-Kabea Port, built new terminals at the international airport and launched major road renovations, but some businessmen say it’s unclear what the overall economy plan is.
“The government needs to clarify positioning,” said Abdul Rahman Arkanna, group chief executive officer of Conglomerate Big Holding. “Would we want to be a logistics hub in the region to become an interconnection between China and the West? Do we want to be identified as a tourist country?”
Nevertheless, Khannah added, “We’re not at the same pace as other countries… but I think we have a lot of momentum.”
