Kuwait will approve a new debt law in the medium term

Significance

The government will stay on in a caretaker capacity until a new one is established. Once that happens, it is likely to return to legislation -- in limbo for almost five years because of parliamentary opposition -- that would authorise it to borrow on international and domestic debt markets. In the interim, the government has used imaginative methods to fund budget deficits, helped by recent high oil prices.

Impacts

• The government will have to introduce fiscal reforms to control the rise in domestic and external indebtedness once a debt law is passed.
• Parliament will demand that the executive demonstrates a commitment to fiscal reform, while blocking radical cuts to current spending.
• Value-added tax, with numerous exemptions, is likely to be introduced, along with taxes on expatriates.
• Capital expenditure is set to be pared down but the public-private partnership programme could be reinvigorated.