Kuwait’s Fiscal Deficit Expected to Widen Significantly Through 2028, Says S&P
Kuwait is projected to face a substantial increase in its headline fiscal deficit, averaging 8.9% of GDP between 2025 and 2028, a sharp rise from the estimated 2% in 2024, according to a report by S&P Global Ratings.
Low oil prices and persistently high government expenditure are the primary drivers of this widening deficit. Juili Pargaonkar, an S&P analyst, highlights that wages, subsidies, and grants alone account for roughly 70% of Kuwait’s total expenditure. S&P forecasts Brent oil prices to average $65 per barrel for the remainder of 2025, gradually increasing to $70 per barrel between 2026 and 2028.
Despite the immediate challenges, S&P anticipates a gradual improvement. “We forecast the deficit will decline to about 6% of GDP by 2028 from about 14% in 2025,” Pargaonkar stated. This expected improvement is linked to higher oil revenue from modestly increased production in 2027-2028 and ongoing government initiatives to boost non-oil revenue.
The rating agency believes that technical groundwork for several fiscal reforms is underway, including the potential introduction of corporate income tax and excise tax, rationalization of subsidies, and optimization of procurement processes. The government is also looking to enhance non-oil revenues through increased government fees and better collection mechanisms via digitalization.
Kuwait’s economic growth is expected to remain modest at 2% in 2025-2026 amidst a slow global growth environment. However, ongoing reforms could bolster longer-term growth prospects. Pargaonkar projects a moderate rebound in real GDP growth to about 2.6% in 2027-2028, fueled by increased oil production and its positive ripple effects on the non-oil economy.
Furthermore, the implementation of the financing and liquidity law in March 2025 is a crucial development. This law will enable the government to issue debt in both domestic and international capital markets, thereby diversifying its funding sources and providing greater financial flexibility.
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