Kuwaiti issuers ranked third among the largest issuers of US dollar-denominated debt in the Gulf Cooperation Council (GCC) countries in 2024, despite the absence of a public debt law that would allow the government to issue sovereign debt.
Fitch Ratings expects Kuwait's move towards diversifying its financing sources to enhance its access to global financial markets in the near future. The government is working towards passing a liquidity/debt law, which would allow it to raise the necessary funds to support its financial needs and develop the domestic market. Fitch assumes that the law will be passed by the end of the fiscal year ending in March 2026, although delays may occur.
Dollar-denominated debt issuances have seen a significant surge, reaching $13.6 billion in 2024 compared to only $60 million in 2023, primarily driven by issuances from Kuwaiti banks. Between 2018 and 2023, total Kuwaiti issuances in dollars amounted to $11.8 billion, making the growth recorded last year exceptional. Additionally, the share of sukuk in total Kuwaiti debt instruments increased to 27% in January 2025, up from 20% in January 2024, reflecting a growing trend towards Islamic finance.
Fitch affirmed Kuwait's credit rating at "AA-" with a stable outlook, indicating continued confidence in Kuwait's ability to meet its financial obligations, even without a public debt law. However, the agency expects the government to resume borrowing in fiscal year 2025, with debt financing approximately 30% of the deficit. Despite this, the total government debt remains low, at 2.9% of GDP in 2024.
Assuming the liquidity law is passed, Fitch anticipates that the government's debt-to-GDP ratio will rise to 6% in 2025 and 9.2% in 2026, especially with the ongoing deficit and declining oil prices, as well as the $4.5 billion Eurobond maturing in 2027. However, even if the law is not passed, the government remains capable of meeting its obligations due to its substantial financial assets.
Despite these developments, Kuwait's debt market remains the smallest in the Gulf, with its size declining by 7% year-on-year to $31.5 billion (in all currencies) by the end of January 2025. Debt issuance in 2024 increased by 29% year-on-year, reaching $38.5 billion.
On the other hand, Kuwait faces significant challenges in developing its debt market, including weak government and private sector activity in the bond market, a lack of issuances in Kuwaiti dinars, dominance of banks in project financing instead of bonds, and a weak investor base outside the banking sector. This indicates a need for structural reforms to enhance its efficiency and expand its scope.
