meed-logo

line1 line2 line3
SIGN IN / REGISTER

Fiscal deficit pushes Kuwait towards reforms

7 August 2024

 

The poor state of Kuwait’s public finances was laid bare in late July, when the Ministry of Finance announced it had run up a deficit of KD1.6bn ($5.2bn) for the fiscal year ending on 31 March.

A year earlier, the government had booked a rare budget surplus, following eight straight years in the red, but it seems unlikely that it will be able to return to a surplus any time soon. A combination of lower oil revenues, rising spending commitments and an underpowered non-oil sector means the strain on the public purse is rising rather than falling.

The main culprit for the recent budget shortfall was a 19% drop in oil revenue to KD21.5bn. Non-oil income rose by a little over 1% year-on-year, but at just KD2.1bn it remains a marginal element of the state’s finances.

Even as overall revenues were falling, state spending increased by around 13% to KD25.2bn. The vast majority of that – KD20.4bn – went on public sector wages and subsidies. Capital expenditure accounted for just 8% of the total, at KD1.9bn.

The outcome for the past year was, though, better than some had expected. The local NBK Capital, for example, had predicted a KD3bn deficit. Even so, it highlights how the economy remains almost entirely dependent on oil revenues and, by extension, how ill-prepared Kuwait is for a global transition away from hydrocarbons.

While other Gulf governments have been investing heavily in renewable energy projects and seeking to diversify their economies, Kuwait has made negligible progress in these areas.

Structural stagnation

The deficits of the past decade have dealt a significant blow to other elements of the country’s financial health. Speaking at the General Budget Forum in Kuwait in mid-July, Finance Minister Anwar Al-Mudhaf said the assets of the State Reserve Fund had fallen to just KD2bn, down from KD33.6bn a decade earlier.

The persistent failure of the government to push legislation through parliament allowing it to issue more debt has meant that savings have been steadily depleted to cover the budget deficits. The current trend is clearly unsustainable.

Ministry of Finance undersecretary Aseel Al-Munaifi told the same event on 14 July that the size of the budget deficit in the coming years would vary depending on oil prices, but predicted it could total KD26bn over the four years from 2025/26 to 2028/29 – far more than is left in the State Reserve Fund.

Falling oil revenues have also contributed to declines in the country’s GDP. The Washington-based IMF estimates it fell by 2.2% in 2023 and could drop by another 1.4% this year.

Amid all these problems, there have been a few positive signs. Annual inflation eased to 2.8% in June, its lowest level since November 2020, helped by softer prices for food, housing, utilities and transport. UK-based consultancy Oxford Economics predicts it should now stabilise, with a forecast of 2.9% in the coming year.

Kuwait Oil Company also announced a major discovery on 14 July, with an estimated 2.1 billion barrels of light oil and 5.1 trillion cubic feet of gas found at the offshore Al-Nokhatha field. More oil reserves will do little to change the economic climate of the country though, particularly when production levels are voluntarily capped under the Opec+ deal.

Controlling spending

The government of Prime Minister Sheikh Ahmed Abdullah Al-Salah appears to have recognised the need for a more fundamental change in direction, with Al-Mudhaf indicating that more will be done to keep spending under control.

The Ministry of Finance has pencilled in spending of KD24.5bn for the current fiscal year – against revenues of KD18.9bn, meaning a deficit of KD5.6bn. The finance minister has said the government is aiming to keep expenditure at the same level through to 2027/28.

That will be contentious though and may require more political resolve than the government is able to muster. On the other hand, it will find it easier to take unpopular action now than in the past, given the decision by Emir Sheikh Mishaal Al-Jaber Al-Ahmed Al-Sabah in May to suspend the National Assembly for up to four years, thereby removing a significant block to policy reforms.

The government may also now decide the time is right to follow most of its GCC neighbours and introduce VAT – more than six years after it was introduced in the UAE and Saudi Arabia – or other measures such as corporate income tax or ‘sin taxes’ on tobacco and sugary drinks. Such a move could provide a significant boost to non-oil revenues.

“I have been dubious about the prospects of substantial fiscal measures being implemented during the current period while parliament is suspended, given the risk that this would be unpopular and viewed as illegitimate, but the minister’s presentation seems to lay the groundwork for reforms,” said Justin Alexander, director of Khalij Economics.

If the government is to successfully limit its spending over the coming years, it will also need activity to pick up in the private sector, not least to provide more jobs for locals. At the moment, the vast majority of Kuwaitis who are in work are employed by a public sector entity.

The most recent employment market data showed job growth among Kuwaiti nationals of 3.2%, but as NBK Capital pointed out in a report on 23 July, “this was due to a gain in public sector jobs, while private sector employment fell”. Just 15% of working Kuwaitis have jobs in the private sector. Indeed, the public sector wage bill rose by 12% in the most recent financial year.

Al-Mudhaf noted in his comments to the General Budget Forum that public sector salaries are now equivalent to around 30% of Kuwait’s GDP, compared to 7-13% in other GCC states. Among other things, he blamed undisciplined hiring and weak performance evaluations for the rising wage bill.

The situation could get worse before it gets better. Alexander noted that “the expectation is that the pending reforms to equalise employment grades across the public sector will boost salary costs even further”.

https://image.digitalinsightresearch.in/uploads/NewsArticle/12289430/main.gif
Dominic Dudley

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Taqa raises $750m to finance water projects

    30 July 2026

    Abu Dhabi National Energy Company (Taqa) has issued a $750m five-year blue bond to finance sustainable water and wastewater management projects.

    The company said the transaction is the largest blue bond issuance in the Europe, Middle East and Africa region. It is also the largest blue bond issued by an integrated power and water utility globally.

    Issuing the bond allows Taqa to raise money from investors specifically to support water-related environmental projects. These can include desalination, wastewater treatment, water recycling and reuse, and infrastructure that improves water efficiency.

    It is the first blue bond issued under Taqa’s Green and Blue Finance Framework, and follows another blue financing transaction in the UAE earlier this year.

    On 8 January, Dubai-based Emirates NBD bank announced the completion of a $1bn dual-tranche sustainable bond issuance, comprising a $300m blue tranche with a three-year tenor and a $700m green tranche with a five-year tenor.

    Emirates NBD said at the time that the $300m tranche was the largest blue bond issued in the UAE and GCC. The proceeds are intended to support marine conservation and sustainable water projects, while proceeds from the green tranche will finance green initiatives.

    Taqa launched its original Green Finance Framework in 2023 and updated it in 2026 to include blue financing instruments. The latest issuance takes its total green and blue labelled bond issuances to $2.6bn since 2023.

    The Taqa financing also comes as the company expands and modernises its water infrastructure. Taqa is targeting reverse-osmosis technology for 66% of its desalination capacity by 2030, up from about 40% in 2025.

    In June, Taqa awarded a contract for the construction of a 1-million-cubic-metre emergency lagoon in Abu Dhabi. The project will be developed in two phases.

    Phase one has a capacity of 500,000 cubic metres and is planned to be completed within 18 months of the contract award.

    READ THE AUGUST 2026 MEED BUSINESS REVIEW – click here to view PDF

    Saudi Arabia builds for the global stage; Rising uncertainty creates fresh set of challenges in the Maghreb; Gulf banks remain robust in the face of geopolitical tensions.

    Distributed to senior decision-makers in the region and around the world, the August 2026 edition of MEED Business Review includes:

    > MARKET FOCUS: Maghreb fortunes diverge
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/17845953/main.jpg
    Mark Dowdall
  • UAE renewables firm secures $375m in financing

    30 July 2026

    Positive Zero, the UAE-based renewable energy firm, has announced the successful closing of a financing facility of up to $375m.

    The long-term financing was arranged by Paris-headquartered Natixis Corporate & Investment Banking (Natixis CIB) and Saudi Arabia-based The Arab Energy Fund.

    Natixis CIB also acted as financial adviser, facility agent, security agent and green loan coordinator for the transaction.

    “The non-recourse financing is the first transaction of its kind in the region for a diversified portfolio of decentralised infrastructure assets, including distributed solar power generation, energy efficiency and clean mobility solutions,” Positive Zero said in a statement.

    “The financing will provide substantial long-term capital to support Positive Zero’s continued expansion in the United Arab Emirates, Saudi Arabia, Bahrain, Oman and Qatar, funding the growth of its distributed infrastructure portfolio, capital expenditure programme and strategic development initiatives,” the Dubai-based firm said.

    The new debt facility secured by Positive Zero builds on US-based BlackRock’s investment of up to $400m in the company in 2023, “further strengthening the company’s capital structure and supporting the next phase of its growth”.

    Positive Zero has the largest distributed solar capacity in the region with more than 500MW in operations and under construction, avoiding more than 450,000 metric tonnes a year of carbon emissions.

    The company has also saved over 100 million kilowatt-hours (kWh) in energy consumption across its client portfolio through its energy-efficiency solutions.

    READ THE AUGUST 2026 MEED BUSINESS REVIEW – click here to view PDF

    Saudi Arabia builds for the global stage; Rising uncertainty creates fresh set of challenges in the Maghreb; Gulf banks remain robust in the face of geopolitical tensions.

    Distributed to senior decision-makers in the region and around the world, the August 2026 edition of MEED Business Review includes:

    > MARKET FOCUS: Maghreb fortunes diverge
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/17845491/main3835.jpg
    Indrajit Sen
  • US-Saudi consortium to build $5bn refinery outside Strait of Hormuz

    30 July 2026

    Register for MEED’s 14-day trial access 

    A consortium of privately owned US and Saudi companies has announced an investment commitment of $5bn to build an integrated oil refining, storage and export facility outside the volatile Strait of Hormuz shipping lane.

    After three years of evaluating sites across the Gulf, the consortium has shortlisted three GCC locations beyond the Strait of Hormuz. Discussions have advanced over the past two years, with a preferred site expected to be selected by the end of 2026.

    The consortium, Mera Oil, comprises Fort Worth, Texas-based MWG Enterprises; the US-based Patel Family Office; and PWS, an associate company of Saudi Arabia’s AHQ Group.

    Mera Oil said it remains open to alternative proposals that meet its infrastructure, resilience and development requirements.

    The proposed project will feature a 200,000-barrel-a-day refinery, deepwater port connectivity, large-scale crude and refined-product storage, and marine export facilities.

    A pre-feasibility study covering refinery design, logistics, capital requirements and execution planning is at an advanced stage.

    Once a host jurisdiction is confirmed, the project will proceed to detailed site assessments and engineering design, with mechanical completion targeted for end-2029, followed by commissioning and the start of commercial operations.

    The consortium plans to focus on producing high-specification middle distillates, including ultra-low sulphur diesel and jet fuel, for selected international markets.

    The project is expected to occupy about 1,200-1,500 acres of port-connected industrial land and could create up to 3,000 direct jobs, and around 15,000 indirect and induced jobs, during construction and operations.

    Mera Oil is also progressing discussions with feedstock suppliers and expects financing to include sponsor equity, sovereign and institutional investment, project finance, export-credit support and sharia-compliant funding structures.

    “Designed as a route-resilient energy hub, the development aims to strengthen regional manufacturing, logistics, technical expertise and energy security,” Mera Oil said.

    The first phase of the planned investment will “incorporate energy-efficient refining technologies, emissions-control systems, and potential future capabilities including sustainable aviation fuel co-processing and carbon management.”

    READ THE AUGUST 2026 MEED BUSINESS REVIEW – click here to view PDF

    Saudi Arabia builds for the global stage; Rising uncertainty creates fresh set of challenges in the Maghreb; Gulf banks remain robust in the face of geopolitical tensions.

    Distributed to senior decision-makers in the region and around the world, the August 2026 edition of MEED Business Review includes:

    > MARKET FOCUS: Maghreb fortunes diverge
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/17843946/main.jpg
    Indrajit Sen
  • Local contractor to build nine Bahrain substations

    30 July 2026

     

    Bahrain’s Electricity & Water Authority (EWA) has awarded the local Al-Kooheji Electrical a contract to build nine 66kV substations across the kingdom, according to a source.

    The project is estimated to be worth $110m and is intended to support rising electricity demand from Bahrain’s domestic, commercial and industrial sectors.

    Four local contractors submitted commercial bids for the contract in January. The bidders were:

    • Nass Contracting ($28.4m)
    • Poullaides Construction Company ($31.7m)
    • Mohammed Jalal Contracting ($32.4m)
    • Al-Kooheji Electrical ($34m)

    The substations will be located at South Hidd Industrial, Mondelez, Alba Downstream Park, Muharraq North, Hamala West, Bani Jamra, Hoora, Maqabah East and West Riffa Club.

    The scope includes the construction of the nine substations and control rooms, as well as the installation of transformers, switchgear and feeders connecting the facilities to the grid.

    It also covers communication cabling, monitoring systems, safety and security systems, and associated civil and structural works.

    As MEED understands, the substations are scheduled to be commissioned in stages. Two are planned for 2026, followed by four in 2027 and the remaining three in 2028.

    Serbia’s Energoprojekt Entel was appointed as consultant for the project in April 2025. The consultant’s contract was valued at about $460,000.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/17834380/main.jpg
    Mark Dowdall
  • CB&I’s newly acquired unit wins Abu Dhabi wells contract

    30 July 2026

    US-based Chicago Bridge & Iron (CB&I) has announced that its Asset Solutions business – acquired earlier this year from UK-headquartered contractor Petrofac – has won a hydrocarbon well services contract in Abu Dhabi.

    The contract was awarded by Cosmo E&P Albahriya, a wholly owned UAE-based subsidiary of Japan’s Cosmo Energy Holdings Company (Cosmo).

    Under the well engineering services contract, CB&I Asset Solutions will support drilling, engineering, planning and operational activities for offshore Block 4 in Abu Dhabi.

    Cosmo secured 100% exploration rights for offshore Block 4 – covering 4,865 square kilometres of Gulf waters northwest of Abu Dhabi city – in February 2021.

    The block was offered in Abu Dhabi’s second hydrocarbons block competitive bidding round, launched by Abu Dhabi National Oil Company (Adnoc) in May 2019.

    “The award strengthens Asset Solutions’ position in the Middle East and solidifies new relationships with key regional operators. With shared goals of prioritising safe, stable and environmentally conscious production, CB&I’s UAE-based team will draw on its local and global experience of delivering innovative well engineering solutions,” the Texas-based CB&I said in a statement.

    ALSO READ: Abu Dhabi awards production licences for hydrocarbon blocks

    READ THE AUGUST 2026 MEED BUSINESS REVIEW – click here to view PDF

    Saudi Arabia builds for the global stage; Rising uncertainty creates fresh set of challenges in the Maghreb; Gulf banks remain robust in the face of geopolitical tensions.

    Distributed to senior decision-makers in the region and around the world, the August 2026 edition of MEED Business Review includes:

    > MARKET FOCUS: Maghreb fortunes diverge
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/17834142/main4710.jpg
    Indrajit Sen