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
  • Prequalification begins for Riyadh King Salman Stadium

    27 November 2025

    Register for MEED’s 14-day trial access 

    Saudi Arabia’s Sports Ministry has issued a notice inviting companies to prequalify for a contract to design and build the King Salman International Stadium in Riyadh.

    The notice was issued on 26 November, with a prequalification deadline of 16 February.

    The stadium will cover an area of about 660,000 square metres (sq m) and will have a seating capacity of 92,000.

    The stadium will feature a 150-seat royal suite, 120 hospitality suites, 300 VIP seats and 2,200 dignitary seats.

    The plan also includes several sports facilities covering more than 360,000 sq m, including two training fields and fan zones; a closed sports hall; an Olympic-sized swimming pool; an athletics track; and outdoor courts for volleyball, basketball and padel.

    The new stadium will host the final of the 2034 Fifa World Cup and will serve as the Saudi national football team’s main headquarters.

    US-based architectural firm Populous is the lead architect for the stadium.

    Construction of the stadium is expected to be completed by 2029.

    The stadium will be located next to King Abdulaziz Park.

    Saudi Arabia stadium plans

    In August last year, MEED reported that Saudi Arabia plans to build 11 new stadiums to host the Fifa World Cup in 2034.

    Eight stadiums will be located in Riyadh, four in Jeddah and one each in Al-Khobar, Abha and Neom.

    An additional 10 cities will host training bases. These are Al-Baha, Jazan, Taif, Medina, Alula, Umluj, Tabuk, Hail, Al-Ahsa and Buraidah.

    There are expected to be 134 training sites across the kingdom, including 61 existing facilities and 73 new training venues.

    The kingdom was officially selected to host the 2034 Fifa World Cup through an online convention of Fifa member associations at the Fifa Congress on 11 December 2024.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/15166460/main.jpg
    Yasir Iqbal
  • Morocco signs $861m deal for polysilicon plant

    27 November 2025

    Register for MEED’s 14-day trial access 

    Morocco has signed a MD8bn ($861m) investment agreement with GPM Holding to establish the country’s first polysilicon manufacturing plant in the southern province of Tan-Tan.

    GPM Holding is a US-based company and a key partner in Green Power Morocco (GPM), which specialises in the installation and maintenance of photovoltaic solar panels.

    GPM is a joint venture with UAE-based renewable energy company Amea Power.

    The planned facility will be located in the El-Ouatia industrial zone, according to the North African country’s Ministry of Investment.

    The facility will have an annual production capacity of 30,000 tonnes, with 85% earmarked for export.

    The plant is expected to generate 1,500 direct and more than 2,000 indirect jobs and strengthen Morocco’s position in renewable energy supply chains, particularly in the manufacturing of solar panel components, according to the Ministry of Investment.

    Last year, GPM completed a 34MW solar project in Hjar Nhal, south of Tangier, under a corporate power purchase agreement.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/15163133/main.jpg
    Wil Crisp
  • Emarat awards contract for Dubai airport jet fuel pipeline

    26 November 2025

    Register for MEED’s 14-day trial access 

    Dubai’s Emirates General Petroleum Corporation (Emarat) has awarded a contract for engineering services for a project to build a new jet-fuel supply pipeline to Al-Maktoum International airport in the emirate.

    The contract for end-to-end engineering design services has been won by Bilfinger Middle East, a subsidiary of Germany-headquartered Bilfinger Tebodin.

    The expansion of Al-Maktoum International airport is estimated to be valued at $35bn. The government approved the updated designs and timelines for its largest construction project in April 2024.

    In a statement, the authorities said the plan is for all operations from Dubai International airport to be transferred to Al-Maktoum International within 10 years.

    The statement added that the project will create housing demand for 1 million people around the airport.

    In September last year, MEED exclusively reported that a team comprising Austria’s Coop Himmelb(l)au and Lebanon’s Dar Al-Handasah had been confirmed as the lead masterplanning and design consultants on the expansion of Al-Maktoum airport.

    Construction on the first phase has already begun. In May, MEED exclusively reported that DAEP had awarded a AED1bn ($272m) deal to UAE firm Binladin Contracting Group to construct the second runway at the airport.

    The enabling works on the terminal are also ongoing and are being undertaken by Abu Dhabi-based Tristar E&C.

    Construction works on the project’s first phase are expected to be completed by 2032.

    ALSO READ: Dubai selects Al-Maktoum airport substructure contractor

    https://image.digitalinsightresearch.in/uploads/NewsArticle/15160792/main0620.jpg
    Indrajit Sen
  • Arabian Construction Company wins Trump Tower Jeddah

    26 November 2025

    Register for MEED’s 14-day trial access 

    Abu Dhabi-based contractor Arabian Construction Company has won the main contract to build the Trump Tower Jeddah.

    Saudi Arabia-headquartered real estate developer Dar Global is developing the project in collaboration with the US-based Trump Organisation.

    The 47-floor tower is expected to be developed at an estimated cost of SR2bn ($532m).

    The enabling works have been completed and were undertaken by the local Specialised Italian Foundation Company.

    In August, MEED exclusively reported that Dar Global was preparing to award the main construction contract to build the Trump Tower development in Jeddah.

    The project is the latest addition to Dar Global’s portfolio, following its announcement of two new projects in Riyadh with the Trump Organisation.

    The announcement follows a partnership deal signed by Dar Global in September last year with Geneva-based jeweller Mouawad to develop a residential project in Riyadh.

    The estimated SR880m ($234m) development will offer 200 residential villas north of Riyadh, close to the Expo 2030 site.

    The development is expected to be completed by 2026.

    According to an official statement, Dar Global has $7.5bn-worth of projects under development in six countries: the UAE, Oman, Qatar, the UK, Spain and Saudi Arabia.

    UK analytics firm GlobalData expects the kingdom’s construction industry to record an annual average growth rate of 5.2% in 2025-28, supported by investments in transport, electricity, housing and tourism infrastructure projects and the Saudi gigaprojects programme.

    The industry will also be supported by the government’s aim of increasing homeownership from 62% in 2020 to 70% by 2030, as part of Saudi Vision 2030.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/15159884/main.jpeg
    Yasir Iqbal
  • Bahrain’s economy walks precarious path

    26 November 2025

    Download the PDF

    MEED’s December 2025 report on Bahrain includes:

    > COMMENT: Manama pursues reform amid strain
    > GVT & ECONOMY: Bahrain’s cautious economic evolution
    > BANKING: Mergers loom over Bahrain’s banking system
    > OIL & GAS: Bahrain remains in pursuit of hydrocarbon resources
    > POWER & WATER: Bahrain advances utility reform
    > CONSTRUCTION: Bahrain construction faces major slowdown
    > TRANSPORT: Air Asia aviation deal boosts connectivity

    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/15159666/main.gif
    MEED Editorial