Report: Kuwait’s New Debt Era: How Sovereign Borrowing Is Reshaping Fiscal Policy, Banking Liquidity and Kuwait’s Capital Market
Kuwait closed fiscal year 2025/26 with an actual deficit of 7.14 billion dinars as oil revenue fell 29.8 percent to 13.589 billion, and the Cabinet said the whole shortfall would be met from the General Reserve Fund. Eighteen months earlier the state could not borrow at all. The Edge’s new comprehensive report, Kuwait’s New Debt Era, explains how sovereign borrowing is reshaping fiscal policy, banking liquidity and the capital market. This article carries the headline findings; the full report, with every table, sensitivity and source, is available for download in English and Arabic at the end.
Law No. 60 of 2025 ended a borrowing freeze in place since 2017 with a 30 billion dinar ceiling. The domestic book that had run down to 50 million dinars in May 2025 stood at 3.7 billion at the end of July 2026 on Central Bank of Kuwait data, and international issuance since the law totals 19.4 billion dollars across three operations. On an Edge working stock basis the two books are about 9.7 billion dinars, roughly a third of the ceiling.
A curve that fell 150 basis points in a year
| Five year domestic cut-off | Date | Yield |
|---|---|---|
| First print | Aug 2025 | 4.875% |
| Auction | 11 Feb 2026 | 3.625% |
| Auction | 29 Jul 2026 | 3.250% |
| Auction | 19 Aug 2026 | 3.375% |
Uniform yields on the Central Bank of Kuwait treasury bond and public debt tawarruq auctions. The full series and the 24 June multi-tenor auction are in the report.
The five year cut-off fell 150 basis points while the discount rate fell only 50, so the curve priced surplus bank dinars, not only the policy rate. The July 2026 dollar notes came at 70, 75 and 85 basis points over Treasuries with ministry stated demand above 18 billion dollars, weeks after a regional export disruption.
Why a sovereign with 640 percent of GDP in assets borrows
The report’s central argument is that this is not a solvency story. The IMF puts Kuwait Investment Authority assets at 640 percent of GDP, but the General Reserve Fund, the Treasury’s liquid balance, is a different object from the Future Generations Fund, and years of deficit financing without a debt law drained the liquid sleeve. Borrowing rebuilds that liquidity without a forced sale of long duration assets, and Decree-Law No. 81 of 2026 now adds a capped, repayable channel from the Future Generations Fund to the General Reserve Fund. Bank data show no crowding out yet, with local bank assets up 9.5 percent and resident credit up 6.7 percent in April 2026, and the rating agencies already model a mix of issuance and reserve drawdowns, with debt rising toward about 40 to 42 percent of GDP by the end of the decade.
Why it matters: A repeatable sovereign curve is the missing public good in Kuwait’s capital market. It gives banks, corporates and project sponsors a dinar reference, and gives the Treasury an alternative to liquidating long duration assets at the wrong moment. The trade-off is the cost of borrowing against the return forgone on assets, and at current funding costs that comparison can favour borrowing so long as the margin holds.
Outlook: The Edge base case is managed borrowing: regular domestic auctions, one international benchmark a year and selective use of reserve liquidity, with the 2026/27 budget deficit of 9.76 billion dinars met from a mix rather than a single instrument. The report sets out the monthly watchlist, the debt cost sensitivities and the three paths from here. The risk it names is habituation, treating a cheap AA- market as a substitute for a non oil revenue base.
Sources: Ministry of Finance, Central Bank of Kuwait, International Monetary Fund, Fitch Ratings, Moody’s, S&P Global Ratings, The Edge.
Download the full report
⬇ Download the report in English
⬇ تحميل التقرير بالعربية
