News Analysis: Liquidity Support Laws Enhance Budget Flexibility
Ibrahim Muhammad – Kuwait has made notable progress in building a legislative framework supporting liquidity and public financial management, within a reform path aimed at expanding the budget’s room for maneuver and reducing reliance on a single source of revenue and financing. Following the approval of the Financing and Liquidity Decree-Law (Public Debt) in March 2025, which reopened the door to government borrowing and set a ceiling for public debt at 30 billion dinars, and the subsequent amendment to the rules governing the Future Generations Fund to allow borrowing from it under specific constraints, the Government Sukuk Law No. 90 of 2026 adds a new financing channel to the sovereign debt system. The significance of these laws lies not only in providing the government with additional liquidity, but also in gradually establishing a comprehensive framework for managing debt, liquidity, and government obligations, thereby enabling diversification of funding sources, markets, investors, and maturity profiles.
The three laws can be viewed as the pillars of a new fiscal policy framework in the country: the Financing and Liquidity Law provides a regulated borrowing channel; the amendment to the Future Generations Fund Law adds an exceptional liquidity margin within defined limits; and the Sukuk Law broadens the base of financing instruments and investors. However, the positive impact on sustainability and sovereign credit ratings will remain contingent on the ability to translate this financial flexibility into productive investment and structural fiscal reform.
Easing Short-Term Budgetary Pressures
The new laws grant the Ministry of Finance greater room to manage liquidity gaps and finance deficits without having to rely directly on drawing down sovereign assets or postponing capital expenditure. The Financing and Liquidity Law permits the issuance of financial instruments with maturities of up to 50 years, while setting a public debt ceiling at 30 billion dinars. The amendment to the Future Generations Fund Law allows borrowing from the fund to support the General Reserve under specific conditions, including that annual loans do not exceed 100% of the average returns of the reserve over the past five years, and that cumulative outstanding loans do not exceed 10% of its net assets. This means the government now has diverse liquidity options and levels, such as borrowing from markets, issuing sukuk, and more flexible management of the General Reserve, in addition to the possibility of using a portion of sovereign asset returns within the established legal frameworks.
However, this flexibility does not mean that the deficit has become less important; the gap between revenues and expenditures remains the primary factor determining the fiscal trajectory.
Factors Supporting Credit Ratings
Regarding the implications of these laws for the country’s sovereign credit rating, diversifying funding sources and having a clear legal framework for debt management can support creditworthiness, as the state becomes less exposed to liquidity risks or reliance on a single financing mechanism when oil prices fall. This has already been reflected in credit rating agency assessments. In November 2025, Standard & Poor’s raised Kuwait’s rating to AA- with a stable outlook, linking the fiscal reforms to the government’s re-enabled ability to issue debt instruments, diversify its funding base, and improve medium-term financial planning capabilities.
Conversely, a continuous rise in debt and deficits could become a source of pressure if not accompanied by reforms in the structure of expenditures and revenues. Therefore, rating agencies will monitor not only the volume of borrowing, but also the debt growth rate, the cost of servicing it, the purposes of its use, the budget’s ability to generate surpluses, and the sustainability of fiscal reforms.
Financing Development Projects
Perhaps the most significant impact of the liquidity support laws will be their ability to protect investment spending from oil price cycles. The International Monetary Fund (IMF) notes that Kuwait has announced major public investments in housing, electricity, water, and transport, amounting to approximately 26% of GDP cumulatively between 2025 and 2030. Consequently, providing long-term financing instruments could allow infrastructure projects to be funded without imposing the full cost on the budget in the year of execution, especially for projects that span several years and deliver long-term economic and social returns.
Here, the importance of sukuk specifically stands out; they add a Sharia-compliant instrument to the sovereign financing system, broaden the investor base both locally and internationally, and allow the government to diversify funding maturities and sources. Moreover, issuing sukuk can contribute to building an Islamic sovereign yield curve, which would later support corporate and financial institution issuances.
Broader Economic Benefits
The benefits are not limited to budget financing. Liquidity support laws can drive the deepening of Kuwait’s financial markets. The return of regular sovereign issuances provides a benchmark price for financial instruments, helping banks, corporations, and investment institutions price their own issuances, while also providing new investment assets for financial institutions and investors. The IMF points out that Kuwait’s local debt market is still in its early stages, with government and private local bonds accounting for about 5% of GDP in 2024, leaving significant room for expansion. It also views the resumption of sovereign issuances as a means to help build a reference yield curve and activate the secondary market.
From this perspective, the Sukuk Law should not be viewed merely as a tool for government financing, but as part of a new financial infrastructure that can expand the role of financial markets in financing the economy.
Supporting Fiscal Reform
Over the next three to five years, these laws are expected to give the government greater capacity to manage oil price volatility and finance major projects, while reducing the need to make financial decisions under liquidity pressure. However, this must be accompanied by reforms in non-oil revenues, subsidies, current expenditure, and the efficiency of government projects. The IMF estimates that Kuwait needs a gradual fiscal adjustment of about 1% of GDP annually over the next decade to achieve long-term fiscal sustainability. In this context, the “Public Debt,” “Drawdown from the General Reserve Fund,” and “Sukuk” laws serve as supporting tools for fiscal reform, not a substitute for it.
In the long term, the greatest value of these legislations may lie in changing the way oil wealth itself is managed. Instead of linking annual spending directly to oil price fluctuations, the state can build a multi-year financing strategy based on a mix of oil and non-oil revenues, investment returns, debt and sukuk issuances, and partnerships with the private sector. This shift can support Kuwait Vision 2035 if it is linked to increased productive investment and the development of non-oil sectors. However, the success of this model requires maintaining a delicate balance: increasing financial flexibility without turning it into permanent debt expansion; protecting the assets of future generations while leveraging the strength of the state’s financial position; and directing debt toward investment rather than consumption.
