Kuwait remains highly dependent on the performance of its oil sector. As oil prices have trended downward, the country’s fiscal stance has also weakened from its post-pandemic surge. After an estimated -4.7% in 2025, and despite some improvement expected in 2026-2027, the fiscal deficit is projected to continue growing unless oil prices rise or the government taps new revenue streams to diversify the economy, as planned in its Vision 2035. 

Despite this fiscal stance, Kuwait has enjoyed a few years of strength in its external position. The current account stood at 34.5% in 2022, moderated to 26.5% in 2025, and is expected to remain around 20% for the rest of the decade. This has allowed the central bank to accumulate the third-largest level of reserves in the region, just behind the UAE and Saudi Arabia. A significant portion of the reserves are held at the Kuwait Investment Authority (KIA), making it the fifth-largest sovereign wealth fund in the world. The KIA serves as the government’s main treasurer. Hence, financing risk is mitigated as the SWF provides substantial liquidity to absorb shocks and smooth fiscal cycles. The banking system remains sound, with an ample liquidity coverage ratio of 184% in end-2025, and NPL ratios at a record low of 1.6%.

Kuwait is pursuing a targeted "dual strategy" that maintains a strict Kuwaitization policy while simultaneously opening doors for high-value investment. While the government has mandated the exit of thousands of expatriates from public sector and administrative roles to prioritize national employment, it has balanced this with reforms that allow 100% foreign ownership, 15-year residency permits and real estate ownership for major investors. Ultimately, the country is tightening restrictions on the general expatriate workforce while aggressively competing to attract global capital and specialized talent to drive its New Kuwait 2035 vision. 

In mid-2025, new capital market reforms were implemented that aligned Kuwait to international standards, allowing for increased participation of foreign investors, encouraging new listings. Kuwait’s stock market was the best performing in the GCC, growing by 19% through Q3 2025.

However, structural weaknesses persist. Judicial effectiveness, property rights and bureaucratic inefficiency remain major constraints, compounded by corruption risks. Despite progress, Kuwait’s regulatory framework still lags behind other GCC states. Meanwhile, fiscal pressures are driving new taxes: excise duties on harmful goods, corporate tax extended to local and GCC firms and a low-rate VAT planned for 2028-30. Personal income tax remains politically sensitive and off-limits.

Kuwait’s political system continues to grapple with the shockwaves of the May 2024 Parliament suspension by Emir Meshal al-Ahmad al-Sabah, expected to last up to four years. This decision came after years of political instability and tensions between the Royal family and an opposition-led Parliament. It consolidated power in a smaller group of leaders, which has brought short-term stability and allowed some much needed reforms to be passed. But it defers addressing the nation's divides among different societal groups. Since taking office, the new leadership has proposed a set of measures that would address gaps according to OECD standards in trade and investment sectors, all with the aim of reducing reliance on oil revenue.

Kuwait maintains strategic ties with the US (hosting troop presence) while simultaneously nurturing economic partnerships with China and Iran. It also plans to develop offshore gas field in coordination with Saudi Arabia, a move strongly opposed by Iran on sovereignty grounds. This balancing act enhances economic diversification but also exposes Kuwait to regional geopolitical tensions.

Kuwait’s extreme climate amplifies political and social stress: frequent 50–54 °C heatwaves, flash floods and rising sea levels pose substantial threats to public health, infrastructure and energy systems. Geopolitically, the country remains vulnerable due to its proximity to disputed Iraq border regions and heavy reliance on Hormuz transit routes for oil and LNG exports.