Political gridlock kept the country out of the sovereign market for eight years. With a multi-billion-dollar issue, it’s back in the game as oil price volatility reinforces the case for fiscal flexibility.
Last September, Kuwait issued its first international sovereign deal since 2017, worth $11.25 billion, returning to global markets as geopolitical tensions in the Gulf and volatile oil prices sharpen the case for fiscal flexibility.
For a country with low public debt, high credit ratings, and substantial sovereign wealth assets, its lengthy absence from the global debt markets was unusual. That changed in March 2025, when a new debt law was approved, authorizing borrowing of up to 30 billion Kuwaiti dinars ($97 billion) over a 50-year period. Kuwait’s last international issuance was its inaugural $8 billion eurobond in March 2017. Subsequent attempts to establish a permanent borrowing framework were rejected by the National Assembly.
Kuwait operates under a semi-democratic system in which the elected parliament plays a decisive role in fiscal legislation. Political fragmentation, frequent cabinet changes, and repeated dissolutions of the assembly have led to prolonged gridlock.
In May 2024, Emir Sheikh Meshal al-Ahmad dissolved the assembly and suspended selected constitutional articles for up to four years, enabling the government to advance stalled reforms, including the new debt law. The absence of a debt law did not prevent the government from running large fiscal deficits when oil prices were lower, which eroded its financial assets, albeit from an exceptionally high base.
Reliance on Hydrocarbons
M.R. Raghu, CEO of Marmore MENA Intelligence, says the new debt law helps cushion the impact of oil price volatility and enables Kuwait to use external borrowing to fund deficits rather than eroding fiscal buffers, while continuing to support infrastructure projects under Vision 2035.
The return to markets expands financing options but does not signal a move toward aggressive leverage, says Issam Al Tawari, founder and managing partner of Newbury Economic Consulting. He notes that Kuwait has historically maintained a conservative approach to debt: “Fiscal policy has generally been prudent. Debt serves to balance the accounts and cover shortfalls arising from lower oil prices.”
Kuwait’s credit profile continues to benefit from low leverage and the Kuwait Investment Authority’s significant external assets. The country is rated A1 by Moody’s and AA- by S&P Global Ratings, placing it among the stronger credits in the emerging markets universe. Kuwait’s spreads incorporate rating differentials and structural considerations, notes Daniel Koh, head of research, Fixed Income, at Emirates NBD Asset Management. “We price Kuwait sovereign issuances around 15 to 25 basis points tighter than Saudi Arabia,” he says. “Compared with the United Arab Emirates and Qatar, which benefit from strong technicals … and the lower need for structural economic transition, those instruments tend to trade 20 to 25 basis points tighter than Kuwait.”
Raising Awareness
A return to regular issuance would help establish a clearer sovereign yield curve across maturities, providing pricing benchmarks for domestic banks and corporates. Koh expects some widening of spreads as supply increases and markets adjust to a more predictable borrowing program.
Consistent issuance would also help re-anchor Kuwait in global fixed-income portfolios and support funding for corporates and quasi-sovereigns, says Razan Nasser, emerging markets sovereign analyst at T. Rowe Price. In February 2025, JPMorgan reclassified Kuwait as a developed market, removing it from its Emerging Market Bond Index. As a result, Nasser says Kuwait no longer benefits from benchmark-driven emerging market demand and lacks a natural investor base outside the region. Kuwait “will need to engage with a broad set of investors to raise awareness,” she says. “Investment-grade credits from the Gulf have seen a growing crossover bid, most recently from Asia, which Kuwait could tap.”
The government has indicated that legislation is also being developed to enable sovereign sukuk issuance both domestically and internationally. “Dedicated sukuk investors would welcome a well-telegraphed supply of sukuk from the sovereign,” says Koh. “While the impact on depth and diversification should be negligible initially, if the sovereign opts to issue a sizable portion of the $8 billion to $12 billion per year in sukuk format, which is not our base case, the significance would be profound.”
Going forward, the key issue will be how renewed borrowing capacity interacts with fiscal reform and the government’s efforts to diversify the economy. If issuance supports structural adjustment while preserving balance sheet strength, credit metrics should remain stable. But without meaningful diversification, fiscal performance will continue to track oil prices and developments in regional energy markets, leaving the fiscal outlook sensitive to both commodity cycles and geopolitical dynamics in the Gulf.
