07/04/2026 03:54 AST
The Central Bank of Kuwait has taken a number of precautionary decisions, which are believed to have been adopted based on the possibility of a worst-case scenario materializing in the ongoing war within our geographic region, with Kuwait being geographically closest to one of its parties, the second largest recipient of its drones and missiles, and along with Qatar, the most adversely affected by any closure of the Strait of Hormuz.
In economics, what matters more than the decision itself is its timing, and there is no harm in it being early or in its assumptions not materializing - which is why we consider these decisions sound both in substance and in timing.
At their core, the decisions revolve around expanding the flexibility margin in banks' use of funding sources, which implies a preemptive loosening of certain restrictions and controls - a flexibility that would ease potential pressures on their clients. The package of decisions issued by the Central Bank consists of six measures: four related to liquidity standards, one concerning the maximum available financing limit, and one related to capital adequacy.
Three liquidity standards saw their minimum thresholds lowered: the first pertains to the minimum Liquidity Coverage Ratio, reduced from 100 percent to 80 percent; the second involves lowering the minimum Net Stable Funding Ratio from 100 percent to 80 percent; and the third involves reducing the minimum regulatory liquidity ratio from 18 percent to 15 percent. The fourth measure raises the maximum permissible negative cumulative gap under the liquidity ladder system. Supporting the above is the fifth decision, which expands the maximum available financing limit by raising it from 90 percent to 100 percent, alongside - and in the same direction - a reduction in the capital adequacy ratio to 12 percent from 13 percent.
The most likely scenario remains that the Kuwaiti banking sector is in sound condition and may not require all of these measures. However, we live in a world where no scenario can be taken for granted, one no longer governed by reason or logic. And should the worst-case scenario materialize, every bank in the world may require far deeper measures. It is for this reason that granting Kuwaiti banks this expanded margin of flexibility is, in our assessment, the right proactive course of action.
UNDP projections
The United Nations Development Programme (UNDP) has issued projections for losses sustained by the Arab region as a result of the war's continuation - and once again, it must be noted that the margin of error in any such projections is significant, regardless of their source. The report, issued in the war's fifth week, states that its continued duration could inflict losses on the Arab economy measured by a contraction in GDP of between -3.7 percent and -6 percent. In absolute terms, this translates to a loss of between $120-$194 billion, or more than all the gains the Arab economy generated in 2025. Unemployment rates could rise by approximately 4 percent, implying the potential loss of 3.6 million jobs - more than the Arab economy created throughout 2025 - while the number of people living in poverty could increase by around 4 million.
At the level of Arab groupings, the report notes that the greatest losers in absolute terms are the Gulf Cooperation Council states, having been dragged into a war they are no party to. The report estimates the potential contraction of their combined GDP at between -5.2 percent and -8.5 percent, or approximately $103- $168 billion in absolute terms. It further projects the loss of between 1.17 and 3.11 million jobs, with corresponding negative implications across other sectors.
The Arab grouping most relatively affected by the repercussions of the war's continuation is the one the report designates as the "Levant" - five Arab countries, most of which border Israel: Iraq, Jordan, Lebanon, Palestine, and Syria. The potential contraction in their combined GDP is estimated at between -5.2 percent and -8.7 percent, with projected absolute losses ranging from $17.30 to $28.90 billion. The rise in unemployment rates - the majority being nationals - is estimated at between 2.3 percent and 2.7 percent, or roughly 320,000 workers in absolute terms, while the number of those falling into poverty is expected to range between 2.85 and 3.29 million people.
What we always wish to reiterate is that what the Gulf Cooperation Council states have endured at the hands of Iran - through the targeting of civilian sites and infrastructure - constitutes inexcusable acts that provoke anger and pain, for none of them participated, nor permitted their lands, seas, or airspace to be used against it. And yet, we must exercise restraint over our anger and resist being drawn into direct participation in this war.
The losses sustained thus far would pale in comparison to what would follow should our anger and pain lead us into direct involvement - and our first and last objective must be to deploy every ounce of our accumulated standing toward bringing this war to a halt.
Oil and public finance
The 2025/2026 fiscal year has now concluded. As a reminder, expenditure appropriations in the budget were estimated at approximately KD 24.538 billion. Total revenue estimates in the budget amounted to approximately KD 18.231 billion, of which oil and gas revenues were estimated at approximately KD 15.305 billion, representing approximately 84.0 percent of total revenues. Oil revenues were estimated based on the following assumptions: a crude oil production quota of 2.500 million barrels per day, an estimated price of $68 per barrel for Kuwaiti oil, an exchange rate of 307 fils per US dollar, in addition to gas revenues of approximately KD 320.9 million, after deducting estimated production costs of KD 4.065 billion. Non-oil revenues were estimated at approximately KD 2.926 billion. Accordingly, the projected budget deficit stood at KD 6.307 billion, excluding the 10 percent deduction from total revenues allocated to the Future Generations Reserve. What matters, however, are the actual results in the final accounts, the issuance of which is typically delayed.
In theoretical terms, the average price of a Kuwaiti oil barrel for the month of March reached $124.4. However, this is a hypothetical figure that does not reflect reality, as Kuwait was only able to export oil that was outside the Strait of Hormuz when the attack on Iran began, which may not have exceeded 10 percent of Kuwait's exports under normal circumstances.
Kuwait is assumed to have generated oil revenues for the entire 2025/2026 fiscal year amounting to KD 13.710 billion -10.4 percent below the oil revenue estimate in the budget for the full fiscal year of KD 15.305 billion. Adding KD 2.926 billion in non-oil revenues, total expected revenues for the full fiscal year would amount to KD 16.636 billion. Comparing this figure against expenditure appropriations of KD 24.538 billion, the general budget for fiscal year 2025/2026 may record a deficit of KD 7.902 billion, unless savings are realized in total expenditures. This will only be known after the final account figures are released.
Kuwait Times
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