Spending on development projects stable despite oil revenue pressure

KUWAIT CITY, May 10: Amid the financial pressures resulting from the war in the Middle East and their impact on the financial situation in Kuwait and other Gulf states, particularly due to disruptions in oil production and exports, questions are being raised about the implications of declining oil revenues in the 2026/2027 budget on the spending rates for ongoing development projects. Will the situation necessitate postponing some projects and initiating new ones that have become essential under the circumstances of the war?

In this context, economist and former advisor to the Ministry of Finance, Mohammad Ramadan, explained that the impact of any halt in Kuwaiti oil production since the beginning of the American-Israeli war against Iran is not expected to create a major financial challenge for capital expenditures on development projects included in the new budget.

The funds allocated for development projects in the 2025/2026 budget amounted to around 1.3 billion dinars, of which approximately 805 million dinars were spent, representing an expenditure rate exceeding 60 percent of the total allocated funds. Projections are sometimes overstated in anticipation of potential fluctuations, particularly since Kuwait holds substantial financial reserves capable of sustaining inactivity for several years without relying primarily on the oil sector.

Even if spending on development projects exceeds one billion dinars in the current budget, it would remain modest relative to the state’s overall financial capacity, especially in light of Kuwait’s strong fiscal buffers that can absorb any decline in oil revenues during production disruptions. Any cash fl ow problem can be managed through the Public Debt Law, which allows Kuwait and the Ministry of Finance to borrow up to 30 billion dinars, in addition to the option of drawing from the General Reserve.

Ramadan stated that the Minister of Finance’s statements on proceeding with development projects represent a positive step for the Ministry of Finance, particularly in light of the current conditions since the onset of the war. He stressed that these circumstances are likely to infl uence global markets, with oil prices likely to continue rising for an extended period, which could undoubtedly compensate, at least partially, for the periods of Kuwaiti oil production disruptions.

Regarding the stimulus packages provided by the Central Bank of Kuwait to the private sector, Ramadan explained that the Ministry of Finance’s data was presented in aggregate form and should have been detailed. The positive aspects of these incentives helped reassure both markets and the private sector by confirming the continuation of capital spending plans as originally outlined prior to the outbreak of the war crisis. About the possibility of postponing some projects to avoid additional pressure on the budget under current circumstances, Ramadan stressed that priority should be given to development projects that support the national economy in the long term, but this does not rule out reconsidering certain nonurgent projects that could be postponed until the current situation stabilizes. He highlighted that the new project that should be proposed now is finding a way to export Kuwaiti oil without passing through the Strait of Hormuz during geopolitical crises that have disrupted Gulf oil supplies.

Ramadan expressed support for establishing pipelines connecting local oil fields to Saudi Arabia via the Arabian Sea in Oman or through the Red Sea corridor. He added that the current circumstances highlight the importance of activating all channels of regional trade and economic connectivity among Gulf countries, especially since the current crisis has underscored the strategic importance of Gulf oil producers to global energy stability when the Strait of Hormuz was closed by Iran.

By Najeh Bilal Al-Seyassah/Arab Times Staff