Budget Deficit... Green!.. By Dr. Abdullah Nasser Al-Mutairi

The phrase “budget deficit” is usually associated with the specter of austerity, the freezing of development projects, the contraction of financial indicators, and measures that burden the economy. However, modern economic thought views this deficit as a starting point and a catalyst for restructuring the economy, provided it is strategically channeled into the right pathways.

The recent efficiency demonstrated by the Ministry of Finance and the Kuwait Petroleum Corporation in managing crises through the financial engineering of financing instruments reflects a strategic resilience worthy of praise. This trajectory was further reinforced in 2022, when the Capital Markets Authority amended its regulations to officially permit the issuance of green bonds and sukuk, aligning with Central Bank directives to integrate environmental, social, and governance (ESG) criteria. This resulted in a promising contribution from the Kuwaiti private sector, with issuances totaling half a billion dollars.

To channel this deficit and transform it into an investment opportunity sought after by sovereign wealth funds, the option of sovereign green sukuk stands out. This instrument not only provides innovative liquidity at a competitive cost but also grants the issuing state what is economically known as the “greenium,” a pricing advantage that lowers borrowing costs due to the intense appetite of global investors for sustainable environmental projects.

Looking analytically at our regional environment, we find that our neighbors have early on picked up on this signal to win the confidence of international investors. The Public Investment Fund of the Kingdom of Saudi Arabia issued green sukuk and bonds exceeding $8.5 billion to finance renewable energy projects, while sustainable issuances in the United Arab Emirates surpassed the $18 billion mark. Meanwhile, Qatar launched $2.5 billion in sovereign green bonds to finance environmental infrastructure. This proactive move enabled these three countries to capture a lion’s share of 92% of the total sustainable debt issuances in the Arab region between 2016 and 2024. To attract international liquidity and neutralize currency fluctuation risks, 91% of these regional instruments were issued in US dollars.

Amid this rapidly evolving regional landscape, there is an imperative need for immediate action and strong engagement in this market, which is projected to reach $50 billion in the future.

All these factors make infrastructure projects such as the joint Gulf Railway project, innovative desalination plants, and circular economy initiatives ideal and attractive targets for financing through green sukuk, thereby alleviating the burden on the budget and solidifying the foundations of water, food, and sustainable transport security.

However, to ensure the success of this direction and to shape supportive public opinion, policymakers must beware of the greenwashing trap—exaggerating environmental claims—which could undermine investor confidence. Furthermore, the state must provide incentive measures to ease the financial burden on local issuers, as the costs of external verification and certification for projects are high.

The need in Kuwait to direct financing toward the green economy is not an intellectual luxury, but a necessity for survival. A budget deficit is not the end of the road; rather, it can be the beginning of a resilient, strong, and diversified economy. When we transform the deficit into an investment in our environment and infrastructure, we are not borrowing from the future, but building it. Only then can we proudly claim that our budget deficit has turned green.

*PhD in Environmental Studies