Kuwait’s fiscal deficit for the 2025/26 fiscal year widened significantly, reaching KD 7.1 billion, approximately 15% of gross domestic product (GDP), according to recent government account reports. This marks the largest deficit since the pandemic-affected 2020/21 fiscal year and surpasses the government’s own budget forecast by KD 800 million. Analysts attribute the sharp deterioration primarily to a steep decline in oil revenues, driven by slower-than-anticipated easing of OPEC+ production cuts and export disruptions linked to the U.S.-Iran conflict. Government spending, in contrast, remained broadly in line with budget estimates.

Total government revenues fell by 25% year-on-year, the largest drop since 2020/21. The decline was almost entirely due to a 30% reduction in oil income, which totaled KD 13.6 billion, more than 11% below budget projections. This shortfall stemmed from an overestimation of oil production, as OPEC+ maintained production freeze measures during the first quarter to prevent oversupply amid softening prices. Additional export losses occurred following Iran’s shutdown of the Strait of Hormuz in March 2026. The average realized oil price for the year was roughly $69 per barrel, close to budget assumptions.

Non-oil revenue streams continued their gradual improvement, increasing by 6% compared to the prior year, representing the third consecutive year of growth. This uptick reflects ongoing government efforts to diversify income sources through higher service fees, increased public property rents, and the recently implemented white lands tax. Furthermore, a 15% corporate income tax on multinational companies came into effect and is expected to contribute to FY 2026/27 accounts. Officials have also indicated potential adoption of an excise tax by 2027 as part of broader fiscal reforms.

On expenditures, total spending rose modestly by 2.1% year-on-year to KD 23.6 billion, coming in slightly under budget in line with historical trends. Compensation for government employees increased by 5%, more than offsetting cuts in subsidies, which fell by 8%, and reductions in other outlays by 4%. The government’s restraint in discretionary spending has been a consistent theme in recent years. Capital expenditure showed a notable improvement, climbing 17% to KD 1.8 billion, with a utilization rate of 79% against budget allocations. This suggests a renewed focus on domestic investment and infrastructure projects prior to the recent escalation in regional tensions.

Deficit financing relied heavily on debt issuance following the passage of a financing and liquidity law in March 2025. Kuwait returned to debt markets for the first time since 2017, selling KD 7.8 billion in bonds, including KD 6 billion within the fiscal year and an $11.3 billion Eurobond issue in October 2025. Public debt as a percentage of GDP rose to an estimated 14% by the fiscal year’s end. The Ministry of Finance has projected the deficit for FY 2026/27 may exceed 20% of GDP, primarily due to ongoing oil revenue losses caused by the closure of the Strait of Hormuz and additional conflict-related expenditures on subsidies and logistics. The FY 2026/27 budget had initially anticipated a deficit of KD 9.8 billion before the outbreak of the conflict.

Despite mounting fiscal pressures, Kuwait’s sovereign debt remains manageable. The government retains substantial room for further bond issuance within the legal ceiling of KD 30 billion over five decades and can draw on reserves from the General Reserve Fund, the liquidity of which has not been publicly disclosed. Credit rating agencies have maintained Kuwait’s strong sovereign ratings—S&P at AA- and Moody’s at A1—citing robust external reserves as a key factor supporting fiscal stability amid the challenging geopolitical environment.