Kuwait, a wealthy nation in the Gulf, is gearing up to take on debt for the first time in nearly ten years. This move has sparked excitement that the country is ready to change its economy and lessen its heavy dependence on oil, an area where it has been trailing behind its regional neighbors.
While countries like Saudi Arabia and Abu Dhabi aggressively chase economic diversification, investing in everything from advanced technologies to new urban developments, Kuwait has primarily relied on oil revenues to support its extensive welfare system with minimal domestic investments.
This week, Kuwait approved a long-awaited public debt law, paving the way for it to borrow money after eight years. This legislation is expected to fund significant projects, including a new airport terminal and a port, and to help Kuwait diversify its sources of revenue.
Sheikh Nawaf S Al-Sabah, the chief executive of Kuwait Petroleum Corporation and a royal family member, remarked that the future of the state must not hinge solely on oil revenues. He expressed that the increasing state budget and population growth would necessitate exploring different revenue sources beyond oil.
Kuwait has a history marked by challenges, including a severe invasion by Iraq in 1990. This has hindered its development compared to some Gulf countries. The nation’s substantial oil income primarily goes towards funding its welfare state, where nearly 80% of the budget is consumed by public sector salaries and subsidies.
The country had enjoyed a degree of democracy, with an active parliament in a region dominated by monarchies, but this shift in economic strategy has come alongside a more authoritarian approach. Last year, Emir Sheikh Mishal Al-Ahmad Al-Jaber Al-Sabah suspended the parliament to push through the public debt law, which faced resistance from lawmakers.
Despite criticism about legislative obstacles to development, Kuwait has one of the oldest sovereign wealth funds with around $970 billion in assets. It’s a unique situation – although daunting, lawmakers have hesitated to tap into these resources for government spending.
The newly established law places a cap on public debt at KD30 billion (about $97 billion). This could allow Kuwait to regularly access international debt markets to fund its economic initiatives, according to economist Carla Slim at Standard Chartered.
Kuwait remains committed to its fossil fuel roots, planning to bolster its infrastructure development funded by oil exports. The nation’s production capacity is set to rise from 3 million barrels per day to 4 million by 2035, banking on consistent global demand for oil over the next decade.
In a move to complement its oil sector, Kuwait is exploring new reserves, having discovered more than 4 billion barrels of oil and gas recently. The KPC is also focusing on petrochemical development and investing in solar power.
While Kuwaiti firms, seeking growth outside their local market, have begun expanding into the wider region—Agility, a key logistics player, even listed on Abu Dhabi’s stock exchange—progress on the debt legislation has sparked optimism.
The stock market in Kuwait is showing signs of recovery, with its premier index reaching two-year highs, outperforming other regional markets. However, experts highlight that Kuwait still needs to present a clear and credible plan for utilizing borrowed funds effectively.
The government has identified major projects like the Mubarak Al-Kabeer port and continued upgrades to the international airport and road networks. Still, some business leaders express uncertainty about the overall economic direction.
Abdulrahman Al Khannah, CEO of BIG Holding, noted the need for the government to define its vision clearly, whether as a logistic hub or a tourist destination. Despite the current pace being slower than some neighboring countries, he believes significant momentum is building for Kuwait’s future.