Political gridlock kept the country out of private markets for eight years. With the multi-billion dollar crisis, it is back in the game as oil price volatility strengthens the financial flexibility.
Last September, Kuwait issued its first international independence deal since 2017, worth $11.25 billion, returning to global markets as political tensions in the Gulf and volatile oil prices sharpened the charge of financial volatility.
For a country with low public debt, high debt ratios, and large wealth holdings, its long absence from international credit markets was unusual. That changed in March 2025, when a new debt law was approved, authorizing loans of up to 30 billion Kuwaiti dinars ($97 billion) over a 50-year period. Kuwait’s last international issuance was its launch of an 8 billion eurobond in March 2017. Subsequent attempts to establish a permanent lending structure were rejected by the National Assembly.
Kuwait operates under a democratic system in which an elected parliament plays an important role in fiscal law. Political divisions, frequent cabinet changes, and repeated dissolutions of the assembly have led to prolonged production.
In May 2024, Emir Sheikh Meshal al-Ahmad dissolved the assembly and suspended selected articles of the constitution for up to four years, enabling the government to press ahead with the reforms, including a new debt law. The absence of debt regulation did not prevent the government from running large deficits when oil prices were low, which destroyed its financial assets, albeit at a high level.
Reliance on Hydrocarbons
MR Raghu, CEO of Marmore MENA Intelligence, says the new debt law helps cushion the impact of oil price volatility and enables Kuwait to use foreign loans to finance the deficit rather than destroy capital, while continuing to support infrastructure projects under Vision 2035.
The return to markets increases financial options but does not indicate a move to a stronger state, said Issam Al Tawari, founder and managing partner of Newbury Economic Consulting. He notes that historically Kuwait has been stuck in debt: “Monetary policy has generally been prudent. Debt serves to balance accounts and cover deficits caused by low oil prices.”
Kuwait’s debt profile continues to benefit from low interest rates and the significant foreign assets of the Kuwait Investment Authority. The country is rated A1 by Moody’s and AA- by S&P Global Ratings, placing it among the strongest credits in the emerging market universe. Kuwait’s spread includes diversification and structural considerations, notes Daniel Koh, head of research, Fixed Income, at Emirates NBD Asset Management. “We’re pricing Kuwait’s output about 15 to 25 basis points tighter than Saudi Arabia,” he said. “Compared to the United Arab Emirates and Qatar, which benefit from strong technology…
Raising Awareness
A return to normal issuance would help establish a clear independent yield curve across maturities, providing pricing benchmarks for domestic banks and corporations. Koh expects some widening of spreads as supply increases and markets adjust to a more predictable lending system.
Fixed issuance could also help anchor Kuwait in global fixed income portfolios and corporate and private equity financing, said Razan Nasser, emerging markets analyst at T. Rowe Price. In February 2025, JPMorgan reclassified Kuwait as a developed market, removing it from the Emerging Market Bond Index. As a result, Nasser says Kuwait no longer benefits from emerging market demand driven by the bench and lacks an investor base outside the region. Kuwait “will need to work with a broader set of investors to raise awareness,” he said. “Investment grade credits from the Gulf have seen increasing crossover bids, most recently from Asia, potentially Kuwait.”
The government has indicated that the law is being developed to issue sovereign sukuk both domestically and internationally. “Dedicated sukuk investors can accept a telegraphed sukuk offering from the king,” said Koh. “While the impact of depth and diversification should be negligible at first, if the sovereign chooses to issue a large portion of the $8 billion to $12 billion a year in sukuk format, which is not our core business, the value could be profound.”
Going forward, a key issue will be how the renewed borrowing power interacts with financial reforms and the government’s efforts to diversify the economy. If issuance supports structural adjustment while maintaining balance sheet strength, credit metrics should remain stable. But without meaningful diversification, financial performance will continue to follow oil prices and developments in regional energy markets, leaving the financial outlook sensitive to both commodity cycles and geopolitical dynamics in the Gulf.
