**Written and disseminated to select contacts on March 18, 2020**



A new debt law allowing Kuwait to tap global debt capital markets is unlikely to be approved and implemented in the near future, although the impetus to do so may gain traction as a global rout on oil prices and economic lockdown from the COVID-19 pandemic dents revenues, further expanding the state’s budget deficit.



  • Without a new debt law in place, Kuwait will not be able to issue bonds and diversify its funding options. The budget deficit will continue to be plugged by the General Reserve Fund (GRF) – one of two key funds managed by the Kuwait Investment Authority (KIA).
  • First, this will have a knock-on effect on public sector spending, which was frozen for the next budgetary year, but the government will have to provide additional stimulus support in response to the coronavirus. Second, it will lead to project delays, as investment in key infrastructure and other economic development goals takes a back seat. Third, foreign investors will be closely monitoring available opportunities.
  • Ratings agencies may have to reassess Kuwait’s creditworthiness in light of additional pressures. In January S&P retained its AA rating for Kuwait, despite fiscal pressures due to lower oil revenues, because of the KIA’s sizeable foreign assets. However, the rating could be lowered if there is a sustained decline in economic wealth.
  • The global slowdown and economic impact of COVID-19 may dent creditworthiness in the near term, but the state should (relatively) comfortably be able to tap global debt markets once a new debt law is passed. Depending on timing, there should be solid demand, and although pricing will need to take into account a higher regional risk premium, it will probably be tighter and more amenable than that for other GCC sovereign issuers.
  • Kuwait is very wealthy and may weather the global crisis better than some of its neighbours. However, drawing down on its GRF assets is not a viable medium- to long-term solution, and there are significant domestic pressures on public sector expenditure. Plus, it doesn’t give investors many opportunities to invest, a key government objective to develop private sector growth and spur job creation.



Since Kuwait last tapped markets in 2017 with an $8bn debut bond issue, the existing debt law has expired, and a new one has not yet been approved by Parliament. The new law allows for the state to raise its debt ceiling and extend its debt maturity profile – both important conditions for developing a deeper debt capital market. Ultimately, a well-established sovereign yield curve will allow other Kuwaiti entities to issue debt for growth or even refinancing.

However, raising the debt ceiling in particular is controversial, and frequent cabinet reshuffles and parliamentary debates have slowed progress. For example, Dr Mariam Al Aqeel, appointed finance minister in December 2019, was replaced with Barrak Al Sheatan in February 2020. The finance ministry oversees the country’s debt issuance.


Rachna Uppal |Senior Analyst Business & Finance Gulf | r.uppal@castlereagh.net