Fitch Affirms Kuwait AA- Rating Amid Debt Shift

Kuwait’s public debt rose to 15 percent of GDP in the fiscal year ending March 2026. This figure marks a sharp increase from approximately 3 percent in fiscal 2024. Fitch Ratings affirmed the country’s AA- sovereign credit rating on August 7. The agency maintains a stable outlook for the nation. This affirmation follows a legal amendment that took effect on September 1. The change allows the government to borrow directly from the Future Generations Fund. This move enhances sovereign financing flexibility. It aims to support the General Reserve Fund. It also helps meet broader fiscal and external financing needs.

Fitch estimates Kuwait’s sovereign net foreign assets at 668 percent of GDP for 2026. This estimate is based on data not officially disclosed by the government. The figure exceeds the AA-rated country average of 577 percent. These substantial external assets provide significant fiscal space. They allow the state to absorb pressures from higher debt and spending. The agency treats the Future Generations Fund as part of the government structure. Borrowing from this fund is classified as an internal transaction. It creates an asset for the fund and a liability for the General Reserve Fund. Consequently, this borrowing does not alter Fitch’s measure of government public debt.

Debt trajectory remains below peer average

Fitch previously projected public debt would reach 29 percent of GDP in fiscal 2026. The forecast for fiscal 2027 stood at 34 percent of GDP. More frequent borrowing from the Future Generations Fund could change this path. It may reduce the need for external government debt issuance. This mechanism could slow the accumulation of public debt. The agency will update its forecasts in September. This update is part of its quarterly sovereign data comparison. Kuwait’s projected debt levels remain significantly below the AA average. The average for 2026 is estimated at 51 percent of GDP.

The fiscal deficit excluding investment income is expected to widen. Fitch forecasts this deficit to reach 19 percent of GDP in fiscal 2026. Most financing needs will be met through borrowing. The remainder will be covered by liquidity withdrawals. These withdrawals from the General Reserve Fund are estimated to average 14 percent of GDP. This period covers 2026 and 2027. The previous fiscal year saw withdrawals averaging 16 percent of GDP. A new Finance and Liquidity Law was issued in March 2025. It permits debt instruments worth up to 30 billion dinars. This amount is equivalent to about 60 percent of GDP. The issuance window spans the next 50 years.

Fiscal structure and revenue sources

The rise in debt is driven by higher government spending. Lower oil revenues also contribute to the increase. The government has taken limited steps to raise non-oil revenues. Current spending remains high relative to income. Public-sector wages and subsidies account for the largest share of current spending. These items represent 81 percent of the budget. A Sukuk Law has also been passed. Once implemented, it will further diversify funding sources. Previous debt-issuance mandates expired in 2017. This expiration increased uncertainty over financing options during the pandemic. The new legal framework addresses these structural gaps.