Kuwait’s economy remains heavily reliant on oil, with oil revenues accounting for a staggering 89.7% of total state income between 2019 and 2024, totaling KD 88.58 billion. This dependency makes the country’s revenue stream highly vulnerable to fluctuations in global oil prices, regional instability, geopolitical tensions, and threats to its key oil export route through the Arabian Gulf.
Despite persistent calls to diversify Kuwait’s income sources, the country struggles to make significant progress. For over 58 years, experts and policymakers have advocated for reducing reliance on oil, especially considering its finite nature. These discussions typically gain traction during state budget approvals but tend to lose momentum once the budget is passed, only to resurface again in the next cycle.
Economic Reforms and Long-Term Solutions
The idea of reducing reliance on oil is not a recent concern, with the need for economic reforms dating back to the first decade of the modern state. Today, however, the challenges are more pressing, as Kuwait faces rising expenditures and oil revenues that struggle to cover them. The budget remains largely dependent on oil revenues, despite repeated calls for reform.
Real change, experts argue, will not occur overnight. The transition to a more diversified economy requires extensive and sustained economic reforms. These reforms must be anchored in a clear vision that successive governments are committed to upholding, without yielding to short-term political pressures.
Economists and consulting firms have long called for policies that generate alternative sources of income, urging the government to focus on diversification efforts beyond oil, such as expanding the non-oil sectors, enhancing productivity, and investing in renewable energy and technology.
Financial Vulnerabilities and Temporary Solutions
The vulnerability of Kuwait’s revenue base is reflected in the stark figures. Over the past five fiscal years (2019/2020–2023/2024), oil revenues constituted 89.7% of the country’s total income. This reliance has left the country exposed to the volatility of the global oil market, as well as regional political tensions.
In response to these challenges, the Ministry of Finance has emphasized that public debt is not a permanent solution to budget deficits, but rather a temporary measure. The government has proposed a draft public debt law to allow the state to borrow from local and international markets to cover any shortfalls and maintain financial stability.
Furthermore, the Ministry of Finance is preparing a comprehensive financial and economic reform plan aimed at achieving long-term fiscal stability and sustainability, ensuring that public finances can weather future economic uncertainties.
Fluctuations in Oil Revenues
The unpredictability of oil revenues has been starkly illustrated in recent years. In 2020/2021, oil revenues plummeted by 43% to KD 8.79 billion, largely due to the economic impact of the COVID-19 pandemic. Despite the global downturn, the government increased the budget to KD 21.29 billion.
However, with the reopening of the global economy and the rise in oil prices from $42.36 per barrel in 2020/2021 to $80.7 per barrel in 2021/2022, oil revenues rebounded to KD 16.21 billion, while the budget rose slightly to KD 22.95 billion.
In 2022/2023, the upward trend continued, with oil revenues surging by 65% to KD 26.7 billion, as oil prices soared to $97.7 per barrel. This led to an exceptional surplus of KD 6.3 billion, the first after several years of consecutive deficits.
Yet, in the following year (2023/2024), the situation normalized, with oil revenues declining to KD 21.52 billion as oil prices fell to $84.36 per barrel, pushing the budget back into deficit.
Looking Ahead
As Kuwait grapples with the ongoing challenge of diversifying its revenue streams, the focus must be on implementing long-term reforms that go beyond the cyclical debates surrounding oil dependence. Economic diversification is essential not only to mitigate risks associated with fluctuating oil prices but also to secure a more sustainable and resilient economy for future generations. However, this process requires a concerted effort from the government, businesses, and citizens alike to push forward with a unified vision for a diversified economic future.
