Kuwait Approves Public Debt Law for US$65 Billion Bond Sale

Explore Kuwait’s Public Debt Law, authorizing US$65 billion in sovereign and Sukuk bonds over 50 years, aiming to attract investments and enhance fiscal sustainability.

By Sudhanshu Singh

Kuwait’s Council of Ministers has approved a long-awaited Public Debt Law, officially known as the Financing and Liquidity Law, marking a major shift in the country’s fiscal strategy. The new legislation will allow the government to issue sovereign bonds and Islamic Sukuk, a move aimed at addressing liquidity challenges, financing infrastructure projects, and reducing reliance on oil revenues.

The law, which has been referred to Emir Sheikh Mishaal Al-Ahmed Al-Sabah for ratification, represents a critical milestone in Kuwait’s broader Vision 2035 economic diversification strategy. It comes at a time when the nation is seeking to balance fiscal sustainability with ambitious infrastructure and development plans. With public debt currently at just 3 percent of GDP, Kuwait remains one of the least leveraged economies in the region, yet the approval of this law signals a shift towards a more structured debt management framework.

Provisions of the public debt law

The Public Debt Law establishes a framework for structured borrowing, allowing Kuwait to access international debt markets with clearly defined limits and conditions. The law grants the government the authority to issue up to KWD 20 billion (US$ 65 billion) in sovereign bonds and Islamic Sukuk over a 50-year period. This flexibility enables Kuwait to diversify its funding sources while maintaining financial stability. Borrowed funds will primarily be allocated to infrastructure projects, economic diversification efforts, and potential fiscal deficit financing.

To ensure sustainable borrowing, the government will only access debt markets when necessary, aligning its strategy with global best practices. The law also introduces a debt-to-GDP ceiling of 60 percent, a measure designed to prevent excessive borrowing and maintain fiscal discipline. By integrating market-based borrowing principles, Kuwait aims to develop a more resilient public finance system that balances investment needs with long-term economic stability.

Economic rationale behind the debt law

Historically, Kuwait has relied on oil revenues and the General Reserve Fund (GRF) to finance public spending. But the declining oil revenues and rising government expenditure have created fiscal imbalances. Kuwait posted a budget deficit of 3.1 percent of GDP in FY2023-24, a stark contrast from the 11.7 percent surplus recorded in FY2022-23, as reported by the International Monetary Fund (IMF).

The absence of a borrowing framework for nearly a decade meant that Kuwait’s fiscal deficits were covered by liquidating assets from the General Reserve Fund (GRF). The depletion of these reserves after the COVID-19 pandemic led to a liquidity crisis, necessitating the introduction of a structured public debt management strategy.

Impact on Kuwait’s creditworthiness and borrowing costs

Kuwait’s strong sovereign credit rating is expected to support favorable borrowing terms in international markets. According to S&P Global Ratings, Kuwait’s low existing debt burden and high sovereign wealth fund reserves will enable the country to issue bonds at competitive rates.

Economic analysts, including Monica Malik, Chief Economist at Abu Dhabi Commercial Bank, anticipate strong demand for Kuwaiti bonds, given the country’s stable macroeconomic fundamentals and low debt issuance history. Kuwait is likely to secure funding at a narrow spread over US treasuries, making its debt cost-effective.

Fiscal sustainability and debt servicing strategy

The Ministry of Finance, led by Dr. Noura Al-Fassam, has emphasized that Kuwait’s borrowing strategy will be managed prudently to avoid excessive debt accumulation. The debt servicing plan includes:

• Diversified repayment structure: Kuwait will issue bonds with varied maturities, ensuring balanced debt repayment schedules;
• Revenue-backed borrowing: New tax measures, including a proposed 15 percent corporate tax on multinational companies, will contribute to debt servicing; and
• Sovereign wealth fund support: The Kuwait Investment Authority (KIA), managing assets worth approximately US$ 1 trillion, will act as a financial buffer to ensure debt sustainability.

Kuwait’s debt strategy compared to regional peers

The approval of the Public Debt Law positions Kuwait alongside regional economies that have successfully leveraged debt markets for fiscal stability and development. The following graph illustrates Kuwait’s GDP growth rate compared to Saudi Arabia and the UAE, highlighting the expected economic impact of debt-financed growth initiatives.

While Kuwait has traditionally lagged behind in leveraging debt, countries like Saudi Arabia and the UAE have used sovereign bonds and Sukuk issuances to fund large-scale infrastructure projects. The UAE, for example, received investment of US$ 4.3 billion in sovereign bonds in 2024, demonstrating how debt instruments can drive economic expansion without destabilizing fiscal policies.

Infrastructure financing and economic diversification

One of the primary objectives of the Public Debt Law is to finance large-scale infrastructure projects essential for Kuwait’s economic transformation. According to the 2025-26 draft budget, the government has allocated US$ 42 billion across 370 development projects. Major infrastructure plans include:

• Mubarak Al Kabeer Port: A key logistics hub supporting regional trade;
• T2 Airport Terminal Expansion: Enhancing Kuwait’s aviation capacity; and
• Digital transformation initiatives: Investments in smart infrastructure and cybersecurity.

Debt issuance will enable the government to accelerate these projects while maintaining liquidity for day-to-day budgetary expenses.

Implications for private sector and foreign investment

The debt law’s approval is expected to boost investor confidence and attract foreign direct investment (FDI) in key sectors. The Kuwaiti government is also introducing parallel reforms to liberalize foreign ownership in real estate and expand residential mortgage markets by allowing private banks to issue housing loans, previously monopolized by Kuwait Credit Bank.

These measures align with Kuwait’s broader goal of reducing public-sector dependency and stimulating private-sector-led economic growth.

Challenges and risks associated with debt issuance

Kuwait must navigate several challenges in implementing the Public Debt Law. Political resistance remains a key obstacle, as previous debt laws encountered significant delays due to parliamentary opposition. Lawmakers have expressed concerns about government accountability in managing borrowed funds, emphasizing the need for transparent debt utilization and fiscal oversight.

Another major risk is oil price volatility, given that Kuwait’s economy is still heavily reliant on hydrocarbon revenues. A sustained drop in oil prices could impact the country’s ability to meet its debt obligations, necessitating a more diversified revenue base. Also, increased public borrowing may contribute to higher inflation, which could erode purchasing power and increase operational costs for businesses.

The road ahead: Policy execution and fiscal resilience

With strong investor demand, low debt-to-GDP levels, and robust sovereign reserves, Kuwait is well-positioned to leverage debt markets effectively.

Going forward, Kuwait’s ability to execute planned reforms, manage debt sustainably, and maintain fiscal discipline will determine the long-term success of its new borrowing strategy. As the country embarks on this new fiscal trajectory, global investors and financial institutions will closely monitor Kuwait’s debt market performance and economic transformation efforts.

(KWD 1 = US$3.25)

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