Emir Sheikh Nawaf al-Ahmad al-Sabah faces the urgent task of overcoming legislative gridlock on debt legislation needed to tackle a liquidity crisis in the wealthy oil producing country. Parliament has repeatedly blocked the bill, which would allow Kuwait to tap international debt markets, but the issue has gained urgency as low oil prices and COVID-19 strained state finances and led to the rapid depletion of available cash reserves. Oil prices at some $40 a barrel are largely below what is needed to balance the OPEC member state’s budget, in which public sector salaries and subsidies accounted for 71% of spending for the 2020-2021 fiscal year.
The recent deadlock on the funding situation directly threatens the government’s ability to function and pay salaries, which represents a significant escalation in the brinksmanship between the two branches of government. The ratings agency, which downgraded Kuwait last week due to higher liquidity risks and concerns over its institutional strength, said it expected the proposed debt law to be passed by emiri decree between October and December. Parliamentary elections are due to be held later this year, though authorities have not yet set a date. Lawmakers opposed to the bill have called for clarity on government plans to reduce reliance on oil exports, which accounted for 89% of revenues last fiscal year.