Kuwait is seeking to borrow for the first time in nearly a decade, raising hopes for an economic shift to reduce its reliance on oil. This decision comes as Kuwait strives to catch up with its regional neighbors, Saudi Arabia and the UAE, who have set ambitious goals to diversify their economies. Kuwait's wealth remains deeply tied to oil, but it is now turning to borrowing to finance major projects, such as a new port and airport, as part of a broader plan to diversify its economy.

Oil Dependence and the Need for Sustainable Revenue Sources

Sheikh Nawaf Al-Sabah, CEO of Kuwait Petroleum Corporation, emphasized that the country cannot enjoy a sustainable future if oil remains the primary source of revenue. Rising budget demands and population growth require new sources of income beyond oil.

Kuwait’s welfare state has consumed around 80% of the state budget, primarily funding public sector salaries and subsidies. This reliance on oil revenues has left the country vulnerable to fluctuations in the oil market. The newly passed public debt law is a step toward alleviating this issue by allowing Kuwait to tap into international debt markets for regular financing.

Kuwait’s Public Debt Limit and Potential Impact on Economic Growth

The public debt law sets the maximum public debt at KD 30 billion ($97 billion). This significant increase in borrowing capacity aims to finance infrastructure development and economic transformation efforts, with experts like Carla Slim of Standard Chartered Bank suggesting that this move will allow Kuwait to raise funds regularly from international markets.

Major infrastructure projects such as the Mubarak Al-Kabeer Port, a new terminal at Kuwait International Airport, and large-scale road renovation initiatives have been announced. However, economists argue that Kuwait needs to develop a more comprehensive economic strategy that clearly defines the allocation of borrowed funds.

The Role of Oil Exports in Financing Development

Although Kuwait is diversifying its economy, it still plans to rely on oil exports for financing much of the infrastructure development. This strategy is aligned with the broader Gulf region's focus on leveraging oil revenues for national growth.

The passing of the public debt law has fueled optimism in Kuwait’s economic future. The Kuwait Stock Exchange has seen a two-year high, with Kuwaiti stocks outperforming those in Dubai and Riyadh so far this year. This increase in investor confidence reflects hopes that the country is finally moving toward much-needed economic reforms.

Overcoming the Challenges of Allocating Borrowed Funds

Despite the progress made with the debt law, experts believe that Kuwait must now focus on effectively allocating the borrowed funds. Clear and credible plans are needed to ensure that the country’s economic transformation efforts succeed.

While the newly passed public debt law marks a significant step toward reducing Kuwait’s dependence on oil revenues, the country still faces challenges in diversifying its economy. It will be crucial for Kuwait to implement a coherent strategy that balances fiscal sustainability with ambitious infrastructure development projects.