The Central Bank of Kuwait has announced the allocation for the issuance of bonds and tawarruq totaling KWD200 million ($660 million). In its statement, the bank specified that this issuance has a maturity period of three months and an interest rate of 4.125 percent. On November 18, the Central Bank of Kuwait similarly announced another bond and tawarruq issue with the same value and interest rate.
On September 9, the CBK declared the allocation of bonds and tawarruq amounting to KWD240 million. The bank noted that these issuances also come with a three-month maturity period and a yield of 4.375 percent.
Furthermore, the bank disclosed a similar allocation of bonds and tawarruq, maintaining the same total value, maturity, and yield rate. Earlier, in April 2024, the Central Bank of Kuwait (CBK) reported the issuance of bonds and tawarruq worth KWD240 million. According to the Kuwait News Agency (KUNA), this issuance was also for a duration of three months, providing a return rate of 4.375 percent. In October 2023, the CBK again allocated KWD240 million for a three-month term for the same types of issuances, continuing with the 4.375 percent return rate. In June 2023, the bank allocated the same amount for a three-month period but offered a slightly lower return of 4.250 percent. Additionally, a separate issuance of KWD230 million took place over six months, featuring the same return rate of 4.375 percent. Moreover, in May 2023, the CBK issued bonds and tawarruq totaling KWD240 million.
What is the purpose of bond and tawarruq issuances?
Bonds act as instruments for governments to raise capital, with a commitment to repay the principal along with interest to bondholders once they mature. Tawarruq, on the other hand, enables businesses to convert funds or debts into tradable securities. The bonds and associated tawarruq mentioned here are local instruments provided by the CBK to banks operating within the Kuwaiti banking sector. The primary aim of these bond issuances is to manage liquidity by absorbing excess funds from the market.
Kuwait projects $61.7 billion budget revenues over next four years
In July 2024, Kuwait anticipated a budget deficit of KWD26 billion ($85 billion) over the next four years. Kuwait has accumulated a deficit of KD33 billion ($107.7 billion), which has been financed from the country’s state reserves.
Looking ahead to the 2024-2025 fiscal year, Kuwait expects revenues of KD18.9 billion ($61.7 billion) against expenditures of KD24.5 billion ($80 billion), resulting in a projected deficit of KD5.6 billion ($18.2 billion).
Read more: Kuwait Central Bank issues bonds, tawarruq worth $792 million
Moody’s affirms Kuwait A1 rating, stable outlook
In May 2024, Moody’s, the credit rating agency, confirmed that the State of Kuwait’s credit rating remains at (A1) with a stable outlook. This rating reflected the country’s solid budget and financial buffers, which are expected to remain strong in the foreseeable future.
However, Moody’s noted that the credit rating is constrained by the lack of progress in economic and financial reforms, which could reduce the impact of fluctuating oil markets, carbon emission reduction policies, and long-term energy transformation.
Moody’s projected that Kuwait’s financial assets, particularly the assets of the Future Generations Fund (FGF), will remain high, reaching 400 percent of the gross domestic product (GDP) by the end of 2023, one of the highest levels globally. Furthermore, public debt is expected to remain below 3 percent of GDP by the end of the 2023-24 fiscal year, one of the lowest in the world.
The Central Bank of Kuwait’s monetary policies, which depend on a basket of currencies, and the Kuwaiti Dinar’s peg to this basket, are seen as a solid foundation for financial stability and protection against the impact of inflation.
Moody’s stated that it could raise Kuwait’s credit rating if the country implements economic and financial reforms to reduce its dependence on oil revenues. This would increase the flexibility of the credit rating concerning oil price fluctuations. Diversifying the economy, particularly in areas like transport, logistics, petrochemicals, data centers, and renewable energy, could also contribute to a potential rating upgrade.
However, Moody’s cautioned that a delay in implementing financial and economic reforms could result in a downgrade of Kuwait’s credit rating.
