Kuwait Adds Government Sukuk as Its Domestic Debt Book Reaches 3.7 Billion Dinars From 50 Million

By The Edge Research Team

Kuwait has added a sharia compliant instrument to its sovereign funding toolkit. Law 90 of 2026 on government sukuk was issued on Sunday, the Ministry of Finance said in its own announcement, allowing the state to issue sukuk as a financing instrument that complies with Islamic law and to place them inside the sovereign financing structure alongside conventional debt instruments. It is the second piece of borrowing legislation in 18 months, and the first one built the book it joins.

What the law changes

Finance Minister Yaqoub Al-Sayed Yousef Al-Rifai said the law is an important step in developing Kuwait’s sovereign financing system, widening the range of instruments available to the state and adding one that complies with Islamic law. He said it improves flexibility in managing the state’s financing needs, diversifies both funding sources and the investor base at home and abroad, and supports the state’s move towards developing capital markets and managing its financial obligations more efficiently, consistent with fiscal sustainability targets and with preserving the strength of the state’s financial position.

Faisal Fahad Al-Muzaini, the ministry’s director of public debt management, set out what the law does in practice. It completes the instruments needed to execute an integrated public debt strategy. It gives greater flexibility in managing the debt portfolio across instruments, markets, maturities and the investor base. It strengthens the ability to manage refinancing and liquidity risk, and to choose the timing, size and structure of each issue according to the state’s financing needs and conditions in local and global markets. And it opens an additional framework for taking up opportunities in Islamic finance markets, widening the base of local and international investors.

That last point is the commercial one. A conventional bond does not reach the part of the regional savings pool that will not hold it. A sukuk does.

The book it joins

The framework is younger than it looks. Decree law 60 of 2025 on financing and liquidity was issued on 26 March 2025. It sets a public debt ceiling of 30 billion dinars, or the equivalent in major convertible foreign currencies, permits instruments with maturities of up to 50 years, and itself runs for 50 years from the date it takes effect.

Before it there was almost nothing to manage. Outstanding domestic public debt instruments and related Tawarruq stood at 50 million dinars in every month from December 2024 through May 2025, on Central Bank of Kuwait figures. The first new issue came in June 2025. By July 2025 the balance was 900 million dinars, and by the end of July 2026 it was 3.7 billion.

Abroad the state moved faster. It raised 11.25 billion dollars across 3 tranches in October 2025, in what the ministry called its first return to the markets since 2017, at 40, 40 and 50 basis points over United States Treasuries, with the book 2.5 times covered. On 23 July 2026 it sold 3 more tranches, 6 billion dollars in total, at 70, 75 and 85 basis points, with an order book the ministry put above 18 billion dollars, more than 3 times the size of the issue. The second sale cleared wider than the first at every tenor.

The announcement of Law 90 is silent on whether sukuk issued under it count against the 30 billion dinar ceiling set by decree law 60. Until that is settled, the law reads as an addition to the instrument set rather than to capacity.

Building a curve, not just raising money

Al-Muzaini’s domestic argument has the longest reach. Issuing government sukuk locally, he said, would support the development of the domestic debt market and build a sovereign sukuk yield curve across different maturities, improving pricing efficiency and providing a benchmark for corporate and financial institution issues, while deepening the secondary market and its liquidity. He said issuance would be managed on an institutional and measured approach.

A sovereign curve is public infrastructure. Kuwaiti issuers of sharia compliant paper have no domestic sovereign sukuk curve to price against, and a state that issues a few tenors creates one for everybody behind it.

Kuwait’s borrowing framework

Kuwait’s fiscal year begins on 1 April and ends on 31 March.

Why it matters: The borrowing framework was assembled in the same 18 months the deficit arrived. The closing account for the year to 31 March 2026 put the actual shortfall at 7.14 billion dinars against 1.05 billion the year before, a rise of 576.2 percent, as oil revenue fell 29.8 percent to 13.6 billion while non-oil revenue rose 6.3 percent. A state whose domestic book had sat at 50 million dinars since December 2024 has no curve, no auction habit and no standing investor list, and none of those can be assembled in the quarter they are needed. That is the work the past year has been doing, and the sukuk law extends it to a class of investor that conventional paper does not reach. Kuwait is building from an unusually comfortable position. The International Monetary Fund projects gross government debt at 24.2 percent of GDP this year against 2.9 percent in 2024, a steep climb in relative terms and a low number in absolute ones, and Fitch Ratings affirmed the sovereign at AA minus with a stable outlook on 7 August, forecasting sovereign net foreign assets at 668 percent of GDP in 2026 from an estimated 652 percent in 2025.

Outlook: The near question is sequence rather than size. A first domestic sukuk that sets a short anchor is worth more to the curve than a large international print, and the language about an institutional and measured approach points that way. The signals to watch are the tenor and the currency of the first issue, because those say whether the immediate object is funding or benchmark building. The shortfall that opened last year has not closed, so the pressure that makes a standing borrowing programme useful has not gone away.

Sources: Ministry of Finance, Central Bank of Kuwait, International Monetary Fund, Fitch Ratings.

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