Kuwait’s Approval of Public Debt Law: Reemerging on Investors’ Radar

Kuwait has passed the much-awaited debt law on 26th March 2025, making it the latest in the series of reforms that the country has been undertaking in recent months. 

Why is the law important?

Amid lower oil production due to OPEC+ related production cuts and lower oil prices, Kuwait has largely been posting a deficit in recent years. For example, for FY 2024, while the country’s break-even oil price had been at USD 88.5/barrel, average price/barrel for its oil had been at USD 84.36. [1]  Following the expiration of the previous debt law in 2017, the country had been unable to raise further debt as it was facing delays in passing a new debt law. Hence Kuwait has been drawing from its General Reserve Fund to finance its deficit. However, the fund’s reserves have also been depleting, declining to KD 2 billion (USD 6.5 billion) as of March 2024 from KD 33.6 billion (USD 108.9 billion) in 2015. [2]  

In this backdrop, the passage of new financial framework on liquidity and public debt by Kuwait is seen as a welcome move with multiple benefits. The new law will allow the government to issue debt up to KD 30 billion (USD 97.3 billion, equivalent to 60% of nominal GDP for 2025). The limit on borrowing horizon has been set at 50 years.

Exhibit: Kuwait’s Fiscal Position (KD billion)

Source: Ministry of Finance

What are the expected benefits?

• By allowing it to tap local and international debt markets, the law would facilitate diversification of funding sources for Kuwait. 

• Kuwait has been seeing an uptick in the pace of project awards in 2024, which has risen by 44% y/y to USD 6.5 billion. It has also approved projects worth USD 5.6 billion in budget for FY 2025/26. Kuwait’s ability to raise debt would improve the country’s financial flexibility, paving way for improved infrastructure investments, speeding up its progress towards economic diversification. 

• Kuwait’s issuance of bonds would aid in establishing a sovereign yield curve and development of local debt markets. 

What could be expected of the country’s return to debt markets?

Given the country's low debt levels at 2.9% of GDP in FY 2024 and healthy credit rating (Fitch: AA-; S&P:A+), the country is likely to see positive demand for its bonds. [3]  Kuwait has also been recently upgraded by JP Morgan from emerging market to developed market indicating its financial stability, qualifying it for investors looking for relatively lower risk investment opportunities. The country has also been seeing improved foreign investor interest, with non-GCC foreign investors being net buyers in its equity market in 2024 at KD 222.4 million (USD 721.4 million), up from KD 74.8 million (USD 242.6 million) in 2023.  

Kuwait had also received strong demand for its debut international bond issuance in 2017. The USD 8 billion issuance had comprised of USD 3.5 billion of five-year bonds and USD 4.5 billion of 10-year bonds. Orders for the issuance had totalled to USD 29 billion. Of the two tranches, the 10-year bond is outstanding and would mature in March 2027. The bond’s yield was at 4.5% as of 31st March 2025. [4]

In recent times, demand for regional bonds has also remained healthy. Saudi Arabia’s USD 12 billion issuance in January 2025 had attracted orders of about USD 37 billion. UAE’s USD 1.5 billion bond issuance in June 2024 had received orders for about USD 6.5 billion and had been issued at a yield of 4.86%, representing a spread of 60 bps over U.S Treasuries. [5]

In all, with Kuwait undertaking a broader set of reforms in recent months - steps to improve non-oil revenue through levy of 15% tax on multinational companies in line with OECD requirement, plans to levy sin-tax on unhealthy products, improvement in pace of project awards etc. - its approval  of the long-pending debt law offers cause for optimism towards the country’s economic and fiscal outlook and further development of its capital markets.  

  [1] Kuwait MoF Closing Accounts FY 2023/24

  [2] Reuters

  [3] S&P

  [4] Refinitiv 

  [5] WAM