In recent weeks, Kuwait’s government has taken significant steps to advance economic reform, including plans to introduce a 15% corporate tax on multinational companies, allow ministries to set their own service fees, and ease restrictions on foreign property ownership.
Additionally, the long-standing monopoly of the Kuwait Credit Bank in the residential mortgage sector is set to end, opening the market to local banks. Government ministries have also been instructed to streamline project execution and implement key performance indicators to reduce delays.
A draft decree allowing Kuwait to sell international debt has been approved by the cabinet, awaiting final ratification by the emir. If enacted, this law would enable the government to borrow up to KD20 billion to address budget deficits.
A Shift in Policy, But No Radical Change
With parliament suspended since May 2024, the government now has a clear path to implement policies without legislative gridlock. This has eliminated years of political deadlock, where frequent elections and ministerial disputes stalled key economic decisions.
However, it would be overly optimistic to assume Kuwait has abandoned its history of policy delays and economic stagnation.
A 15% tax on foreign corporations already exists but has been inconsistently enforced. Kuwait and Qatar also remain the only Gulf Cooperation Council (GCC) countries yet to introduce a Value Added Tax (VAT).
Despite years of discussion, Kuwait has failed to diversify its revenue base, lagging far behind Saudi Arabia, where non-oil revenues have been growing at 15% annually for over a decade.
Kuwait’s Financial Strength—But Governance Gaps Remain
While Kuwait often reports budget deficits, it does not suffer from a financial crisis. The Kuwait Investment Authority (KIA) manages $630 billion in assets, making it one of the largest sovereign wealth funds globally.
Kuwait holds minimal debt and maintains strong credit ratings (A+ to AA-), allowing it to easily raise capital if needed. The IMF’s recent report highlights that, when including investment income and state-owned company profits, Kuwait’s budget remains in surplus.
Yet, fiscal challenges persist. The General Reserve Fund, which once held Kuwait’s most liquid assets, was fully depleted in 2020, leaving only the Future Generations Fund as a financial buffer. However, legal restrictions prevent its use for budget stabilization.
Structural Barriers to Reform
Kuwait’s public sector wage bill remains a major economic burden. Government salaries, subsidies, and social benefits consume over two-thirds of public spending, with 90% of total expenditure classified as recurrent costs.
Public sector wages are, on average, 40% higher than private sector salaries, according to IMF data, making the transition to a private-sector-driven economy challenging.
The Path Forward
While the recent flurry of economic decrees signals positive intent, Kuwait must take bold steps to enhance liquidity, attract foreign investment, reduce subsidies, and modernize its financial sector.
None of these reforms will yield immediate results. Structural transformation takes time, often requiring years—if not decades—of consistent effort.
However, the recent policy moves provide a glimmer of hope. If Kuwait sustains this momentum, the long-awaited economic revival could finally take shape.
