KUWAIT CITY, Sept 22: Kuwait faces significant economic challenges due to its heavy reliance on oil revenues, which exposes the state to fluctuations in the global oil market, reports Al-Seyassah daily. A recent report from Al-Shall emphasizes the urgent need for Kuwait to impose a ceiling on public expenditures, recommending a limit of 24.5 billion dinars over the next three fiscal years. This strategy aims to mitigate risks and promote fiscal discipline during uncertain times. The report highlights Kuwait’s economy as heavily dependent on volatile oil market conditions.

Despite substantial savings amassed during previous oil booms, the country has struggled to diversify its income sources. Fitch Ratings reaffirmed Kuwait’s sovereign rating at AA- with a stable outlook, noting strong external buffers from these savings but highlighting weaknesses in economic reform and public finance restructuring. Fitch anticipates that Kuwait will need to tap into the global debt market by fiscal year 2025/2026 to cover around 30 percent of the projected budget deficit. The report suggests that enhancing economic structure and financial governance could potentially lead to a higher credit rating. The direct impact of oil price fluctuations on Kuwait’s budget is alarming.

A $10 drop in oil prices can shrink the budget by about 4 percent of GDP, while a reduction in oil production by 100,000 barrels can lower the budget by approximately 1.5 percent of GDP. This stark dependency illustrates Kuwait’s precarious economic position globally. Al-Shall’s conclusion is straightforward that Kuwait’s reliance on oil creates a scenario where external conditions dictate financial stability. The lack of diversified income sources exacerbates this vulnerability. Instead of borrowing from global markets -- which may only delay financial issues -- the report advocates for setting a public expenditure cap as a prudent measure. Establishing this ceiling at 24.5 billion dinars could help the government navigate fiscal risks and stabilize the economy. While modest, this approach represents a necessary step towards responsible fiscal management. The report warns that without meaningful reforms and diversification, Kuwait risks deepening its financial challenges and continuing its dependence on oil revenues, leaving its economy exposed to global market fluctuations.