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Zawya
02-06-2025
- Business
- Zawya
Kuwait poised for heavy borrowing in 2025-2028
Kuwait is expected to be among the largest regional borrowers in the next few years to bridge its widening fiscal gap due to low oil prices and massive allocations for public servants wages and social spending. During 2025-2028, the deficit in the budgets of the Gulf OPEC oil producer is expected to swell sharply from its relatively low level in 2024, the US rating agency S&P said. In a report this week, the agency said the deficit, driven by lower crude income and high public spending, is projected to account for an average 8.9 percent during that period. The shortfall could surge to nearly 14 percent in the current fiscal year 2025-2026, which started on 1 April, up from just two percent in 2024, it said. The agency did not provide deficit figures but Kuwait's GDP stood at around $163 billion in 2024 and is forecast to rise by one-four percent in the next three years barring unexpected developments in the oil market, according to National Bank of Kuwait (NBK). This means GDP could range between $165 billion and $170 billion, with the budget deficit averaging around $15 billion during that period. 'Kuwait and other Gulf countries are following a strategy to maintain a huge financial cushion to maintain their strong credit rating,' Saudi economist Ihsan Buhlaiga told Zawya Projects. 'This is demonstrated in their intensified efforts to build up their overseas assets, mainly those of their sovereign wealth funds…this means whenever there is a budget deficit, they will fund it through borrowing rather than withdrawing from those assets.' Kuwaiti officials said last week the Gulf state could borrow $10-20 billion during 2025-2026 to cover the deficit following the approval of a debt law in March. Zawya reported last week that Kuwait could issue its debut debt tranche very soon after the government cleared the country's multi-billion sovereign wealth fund, and the central bank to borrow funds. Analysts said borrowing could gain momentum in the following years if oil prices remain below the $70 price assumed by Kuwait in its budgets and given the relatively small revenues from other sources. Kuwait has also been unable to trim spending as more than two thirds of the expenditure is allocated for wages and subsidies, which cannot be cut. Finance Ministry figures showed non-oil revenues would provide only around KWD2.6 billion ($8.5 billion) of the 2025-2025 budgeted revenues of KWD18.9 billion ($62 billion). The figures also showed salaries would eat up KWD14.8 billion ($49 billion) of the budgeted spending of about KWD24.5 billion ($81 billion), nearly 60 percent. Allocations for subsidies were set at KWD4.5 billion ($14.8 billion), nearly 18 percent of the total. NBK said in a recent report that Kuwait was forced to cut capital spending by around 1.7 percent in the 2025-2026 budget while allocations for wages to public servants and social aid to citizens swelled by nearly 9.1 percent over the previous budget. 'The decline in capital expenditure represents a continuation of a downward trend in such spending over the past four years despite the pressing need for funding infrastructure projects in line with Vision 2035,' the report said. Kuwaiti officials said last week that borrowing this year would be used mainly to fund infrastructure projects with a value of more than $7 billion. (Reporting by Nadim Kawach; Editing by Anoop Menon) (
Zawya
14-04-2025
- Business
- Zawya
US tariffs may widen GCC fiscal deficits
Gulf Arab oil producers could suffer from bigger budget deficits through 2025 with growing fears that oil prices may continue to slide amidst signs of a global trade war. Although their hydrocarbon exports are not affected by a 10 percent import tariff imposed by the US President Donald Trump on their products, the six Gulf Cooperation Council (GCC) countries could suffer from a plunge in their oil revenues, which provides more than two thirds of their national income. Analysts said the six nations, which control nearly a third of the world's proven oil deposits, would be worried about the indirect impact of a global trade war on their income as it would drive down demand and depress prices. They said that a sustained price downturn would squeeze GCC revenues and widen fiscal deficits as some of them have assumed high oil prices in their budgets. Saudi Arabia, for instance, needs oil near $96 per barrel to balance its 2025 budget, well above current prices. Kuwait also normally bases its budget on a $70 price. 'I believe there could be an indirect impact of the US tariffs on the GCC fiscal position should oil prices continue to slide…Saudi Arabia and other producers are already struggling to prevent prices from tumbling by reducing their production,' said Ihsan Buhlaiga, a well-known Saudi economist. 'The situation now is complicated as those producers cannot keep cutting output…in the case of the GCC countries, they could have a higher deficit because they cannot trim current spending further…any cuts could be in capital expenditure,' he told Zawya Projects. In 2024, Saudi Arabia recorded an actual budget deficit of around 116 billion Saudi riyals ($30.9 billion) and it forecast a shortfall of SAR101 billion ($26.9 billion) for 2025. The Kingdom, the world's dominant oil exporter, covered last year's budget through borrowing and is expected to borrow again this year, boosting its total public debt to nearly SAR1.343 trillion ($358 billion) at the end of the year, according to the Riyadh-based Jadwa Investment, which cited Saudi Finance Ministry data. Kuwait is also expected to borrow this year to finance a budget deficit of around 6.3 billion Kuwaiti dinars ($20.79 billion) after it approved a new debt law last month. Bahrain's budget also remained in deficit while Qatar, Oman and the UAE recorded surplus as income was bolstered by large LNG exports. But analysts believe the balance may be upset if oil prices fall sharply. 'Trump's tariffs will have profound implications on the global oil trade and, consequently, the MENA's oil-dependent economies,' the Washington-based Atlantic Council said in a study last week. 'Tariffs generally dampen market demand by raising consumption cost and introducing uncertainty about the future. US tariffs are likely to weaken the world's consumption, which in turn would reduce oil demand. As a result, oil prices would decline, dealing a blow to the region's oil producers.' The GCC (Saudi Arabia, Qatar, Bahrain. Kuwait, Oman and the UAE) is the third largest trading partner of the US after China and Japan. In 2023, their imports from the US stood at around $49.8 billion and exports at nearly $30.3 billion, with a $19 billion surplus in favour of the US. The UAE was the largest Arab trade partner of the US, accounting for nearly 39 percent of the total GCC-US exchange in 2023. Saudi Arabia was second as it amounted for nearly 37.9 percent of the total. (Reporting by Nadim Kawach; Editing by Anoop Menon)
Zawya
20-03-2025
- Business
- Zawya
GCC SWFs set for more growth
When they decided to create funds to save part of their oil export earnings, Gulf Arab countries perhaps did not expect these burgeoning windfalls to rocket to that level. Two of their sovereign wealth funds (SWFs) have just surpassed the trillion-dollar mark while a third one has reached the final loop in the race to break that mark. At more than $3.5 trillion, the assets of four SWFs in Saudi Arabia, the UAE, Kuwait and Qatar could be worth 10-year oil revenues at the current prices and crude export rate. But how such a windfall has swelled so fast against changing oil production and persistent storms in the global financial markets? 'I consider the Gulf wealth funds as great stories of success and started from scratch and now look at what they have achieved,' said Mohammed Al-Asumi, a Dubai-based economic adviser. 'Over the past few years, their assets have grown fast mainly because of relatively strong oil the most important factor is that these SWFs are managed is the good asset management which tells the real story,' he told Zawya Projects. In mid-2020, the combined financial assets of the SWFs in those four Gulf nations stood at around $1.977 trillion, according to figures gathered by ZP from previous reports by the US-based SWF Institute. The assets surged to around $2.49 trillion in September 2022 and about $2.907 trillion at the end of 2023. They are now estimated at around $3.537 trillion, an increase of nearly $1.56 trillion in 4.5 years. ADIA surges A breakdown showed the assets of the Abu Dhabi Investment Authority (ADIA), the largest SWF in the six-nation Gulf Cooperation Council (GCC), leaped from about $697 billion in mid-2020 to $1057 trillion at present. Those of the Kuwait Investment Authority (KIA) soared from around $592 billion to $1.029 trillion while the assets of the Saudi Public Investment Fund (PIF) nearly tripled from around $360 billion to $925 billion in the same period. The Qatar Investment Authority (QIA) also saw its assets swelling from around $328 billion to $526 billion, the SWF Institute report showed. The figures showed these funds are now among the world's 10 largest SWFs and account for nearly a quarter of the total global SWF assets of $13.7 trillion. High earnings 'The GCC SWFs are generating large sums of I believe they will continue to grow because their policy is to strictly avert withdrawing from those funds to finance the budget deficit or other needs,' said Ihsan Buhlaiga, a Saudi economist and former member of the Shura (appointed parliament). 'As for the PIF, it has set a target to reach $one trillion and I am sure it will reach it in the near forget that the PIF is concentrating on maximising return and several affiliated companies will soon start achieving revenues as their goal is not only to develop the PIF has a clear and definite strategy for supporting the national economy and increasing overseas investments...I don't think it will deviate from this strategy which is vital for the country,' Buhlaiga told Zawya Projects. He noted that Saudi Arabia has persistently shunned withdrawing from PIF reserves and instead resorted to borrowing from the local and foreign markets to fund its fiscal deficits. As a result, the Saudi public debt has steadily grown over the past few years. Sitting atop the world's second largest recoverable oil resources, Saudi Arabia has suffered from budget deficits in most years in the past decade, with the exception of 2022, when crude prices shot above $100. Saudi borrowing Annual borrowing caused its public debt to swell from around SAR 854 billion ($227.7 billion) at the end of 2020 to SAR 1,216 billion ($324.2 billion) at the end of 2024, according to the Riyadh-based Jadwa investment and consultancy firm, which expects the debt to climb to SAR1,343 billion ($358 billion) at the end of 2025. Kuwait has also suffered from budget deficits in the past five years but it did not resort to SWF withdrawals. Local newspapers, however, said the government was forced to withdraw nearly 7.5 billion dinars ($24.7 billion) from the Future Generation Fund to cover a large budget deficit during 2021-2022. Kuwait is also planning to revive its defunct debt law after an eight-year gap to borrow nearly $66 billion over the next 20 years to support its budget. The UAE and Qatar are different as their budgets have recorded surpluses in most years in the past decade, allowing them to largely replenish their SWFs and stave off borrowing large funds. UAE surplus Figures by the Abu Dhabi-based Arab Monetary Fund showed the UAE budget basked under a massive cumulative fiscal surplus of nearly $102.7 billion during 2021-2023 while the surplus in Qatar's budget stood at around $38 billion during the same period. In 2024, the UAE was expected by Fitch ratings agency to record another surplus of 4.1 percent of GDP while Qatar's budget registered a surplus of about $1.6 billion, according to the Qatari Finance Ministry. The Singapore-based Global SWF said in a report last year that the Gulf SWF assets under management, including those of Abu Dhabi Mubadala Development company and other GCC members, are projected to swell to $7.6 trillion in 2030 as regional states intensified a drive to diversify their economies. 'SWFs have become a key source of income for the GCC countries, a strong fiscal cushion and the backbone of their economies along with all started as a dream and it has almost been fulfilled,' Asumi said. (Reporting by Nadim Kawach; Editing by Anoop Menon)
