Kuwait returns to Global D
Political gridlock kept the country out of the sovereign market for eight years. With a billion-dollar issue, it is back in play as oil price volatility strengthens the case for fiscal flexibility.
Last September, Kuwait issued its first international sovereign deal since 2017, worth $11.25 billion, returning to global markets while sharpening the case for fiscal flexibility amid geopolitical tensions in the Gulf and volatile oil prices.
For a country with low public debt, a high credit rating and substantial sovereign wealth assets, its long absence from global debt markets was unusual. This changed in March 2025, when a new debt law was approved, allowing 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 financial legislation. Political fragmentation, frequent cabinet changes and repeated dissolutions of the Assembly led to prolonged deadlock.
In May 2024, Emir Sheikh Meshaal al-Ahmad dissolved the assembly and suspended selected constitutional articles for up to four years, enabling the government to pursue stalled reforms, including a new debt law. The absence of a debt law did not prevent the government from running large fiscal deficits when oil prices were low, reducing its fiscal assets, despite an exceptionally high base.
dependence on hydrocarbons
MR Raghu, CEO of Marmor MENA Intelligence, says the new debt law helps mitigate the impact of oil price volatility and enables Kuwait to use external borrowing to finance deficits rather than depleting fiscal buffers, while continuing to support infrastructure projects under Vision 2035.
Issam Al Tawari, founder and managing partner of Newbury Economic Consulting, says the return to markets expands financing options but does not signal a move towards aggressive leverage. He notes that Kuwait has historically maintained a conservative approach towards debt: “Fiscal policy has generally been prudent. The debt serves to balance accounts and cover shortfalls arising from low oil prices.”
Kuwait’s credit profile is benefiting 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 strongest credit emerging markets. Daniel Koh, head of research for fixed income at Emirates NBD Asset Management, says Kuwait’s spreads include rating differentials and structural considerations. “We price Kuwait’s sovereign issues about 15 to 25 basis points lower than Saudi Arabia’s,” he says. “Compared to the UAE and Qatar, which benefit from stronger technicals … and require less structural economic change, those instruments trade 20 to 25 basis points lower than Kuwait’s.”
raising awareness
The return to regular issuance will help establish a clear sovereign yield curve across maturities, providing pricing benchmarks for domestic banks and corporates. Koh expects spreads to widen somewhat as supply increases and markets adjust to a more predictable borrowing schedule.
Razan Nasser, emerging markets sovereign analyst at T. Rowe Price, says continued issuance will also help re-establish Kuwait in global fixed income portfolios and support funding for corporates and semi-sovereigns. In February 2025, JPMorgan removed Kuwait from its emerging market bond index and reclassified it as a developed market. 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 broader group of investors to raise awareness,” she says. “Investment-grade credit from the Gulf has seen increasing crossover bids, most recently from Asia, which Kuwait can take advantage of.”
The government has indicated that legislation is also being developed to enable the issuance of sovereign sukuk domestically and internationally. “Dedicated sukuk investors will welcome a well-telegraphed supply of sukuk from the sovereign,” says Koh. “While the impact on depth and diversification should initially be negligible, the significance would be profound if the sovereign chooses to issue a substantial portion of the $8 billion to $12 billion per year in the sukuk format, which is not our base case.”
Going forward, the key issue will be how the renewed borrowing capacity interacts with fiscal reform 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, fiscal performance will continue to track oil prices and developments in regional energy markets, making the fiscal outlook sensitive to both the commodity cycle and geopolitical dynamics in the Gulf.
