Kuwait focuses on development assistance to strengthen regional cooperation

Development aid is a fundamental and long-standing pillar of Kuwait’s foreign policy. Since independence, the combination of the country’s geography, relatively small armed forces and oil wealth have shaped the views of Kuwaiti leadership on the importance of bilateral and multilateral development cooperation as a tool of diplomacy. The country has pioneered regional efforts in the field, establishing the Kuwait Fund for Arab Economic Development (KFAED), an agency dedicated to the provision of official development assistance (ODA), in 1961.

Fund Structure

The first international development fund in the Arab world, today KFAED is one of the largest providers of ODA in the GCC region. To date, the fund has disbursed over $19bn in ODA funding to 107 countries, primarily through concessional loans for infrastructure projects designated as high priority by recipient countries, following a demanddriven approach. The fund also provides feasibility studies and technical aid. Domestically, it operates a training programme for engineers and channels up to 25% of its capital to public entities that seek to meet the country’s housing needs.

While KFAED is under the prime minister’s overall supervision, in practice management is delegated to the Ministry of Foreign Affairs. Other public authorities and non-governmental organisations (NGOs) also contribute to policy formulation and execution. Notably, KFAED has been effectively self-financed since 1986, deriving its revenue from interest. This helps to limit its exposure to oil price volatility, as KFAED does not depend on capital to operate.

Kuwait has been a participant in the OECD’s Development Assistance Committee (DAC) since 2018. The country can attend DAC’s and subsidiary bodies’ formal meetings, contributing to debates but not taking part in formal decision-making processes, and as a result is not bound to DAC’s conclusions, decisions or recommendations. In addition, KFAED is a member of the Arab Coordination Group and takes part in the Arab-DAC Dialogue on Development.

Aid Indicators

According to OECD data, in 2020 Kuwait provided $388m in ODA under the grant-equivalent methodology in effect since 2019, representing 0.28% of gross national income (GNI). While this was a decrease in real terms in terms of volume, it was an increase of 0.03 percentage points in the share of GNI from 2019. A total of 9.2% of the funds were provided in the form of grants and 90.8% as non-grants, such as sovereign loans, multilateral loans, equity investment and loans to the private sector. In gross terms, total ODA amounted to $789.1m. Gross bilateral ODA comprised 95.9% of the total, and was mainly channelled through the public sector as earmarked funding. The remaining 4.1% was allocated to core contributions to multilateral organisations.

Country programmable aid made up 95% of gross bilateral ODA, compared to a DAC country average of 49.7%. Gross bilateral ODA primarily focused on Africa, which received 75.8%, and the Middle East, which received 9.1%. Egypt took the lion’s share of gross bilateral ODA, at 73.5% of the total, followed by Lebanon, at 6.6%. Overall, Kuwait allocated 78.6% of gross bilateral ODA to low- and middle-income countries. In terms of gross contributions to multilateral organisations, the World Bank received 49.8% of the total, whereas the UN received 36.1%.

In 2020 the Sustainable Cities and Communities and Zero Hunger UN Sustainable Development Goals were the main focus of bilateral ODA. Some 59.4% of total commitments by value supported economic infrastructure and services, with a strong focus on the development of transport and storage. ODA for social infrastructure and services amounted to 25.4%, with water and sanitation the main recipients. Bilateral humanitarian assistance was an estimated 4.9%, and earmarked contributions to multilateral organisations focused on humanitarian assistance.

In 2020 Kuwait provided $2m in gross bilateral ODA to support the global Covid-19 pandemic response, primarily in the form of a grant to Lebanon and Jordan to finance their health-related efforts to combat the virus. Also in connection to the pandemic, KFAED participated in the Debt Service Suspension Initiative, which was approved by the G20, Paris Club member countries and other bilateral creditors in April 2020. Under this initiative, KFAED postponed debt-service payments due between May 1, 2020 and December 31, 2020, and rescheduled payments over four years with a one-year grace period.

Although the OECD’s data on ODA helps to establish benchmarks and allow for international comparison, available statistical methods do not always capture the real sum of development aid from Arab countries, where the understanding of public and private aid is fluid. In the region, selected NGOs often receive some government funding in addition to private donations. Moreover, religious aid is excluded from OECD reporting. As a result, zakat, a contribution of 2.5% of wealth obligatory under Islam, is not accounted for, even though it plays a role in Kuwait’s international assistance. Therefore, the total amount of development assistance provided by Kuwait is likely larger than the figure reported by the OECD.

Sustainable Development

International donors have faced a rapidly changing operating environment since 2020. The pandemic caused a significant rise in poverty and hunger, and led to various adverse economic dynamics, particularly in the logistics and financial spheres. Towards the end of 2021 global recovery was under way in an uneven manner, with inflationary pressures and persistent supply-side constraints creating challenges. Moreover, many low- and middle-income countries resumed debt repayments when deferments came to an end. While 2021 closed with strong ODA activity, relief and development needs were mounting. In 2022 Russia’s invasion of Ukraine compounded previous headwinds, deepening inflationary dynamics that erode the purchasing power of ODA and raising global concerns around food security. However, despite mounting challenges, Kuwait’s improving macroeconomic situation, which benefits from windfall profit on the back of elevated oil prices, should facilitate the future expansion of its ODA.

Support for the UN Sustainable Development Goals has begun to play an increasing role in this expansion. For example, in 2001 KFAED expanded its scope to allow for the financing of health and education projects; by 2020 these had reached a 13% share of total lending. KFAED has also reoriented its activities in order to focus on financing more initiatives for drinking water and sanitation services. This resulted in the construction between 2015 and 2020 of the Khan Younis wastewater treatment plant in Palestine, in partnership with UN Development Programme (UNDP), the Islamic Development Bank and the government of Japan. The project improved public health and water access for more than 217,000 people in the Gaza Strip. The same focus continues through the April 2022 KFAED-UNICEF grant agreement for the support of children and families in Gaza.

The fund’s leadership is also placing an increasingly emphasis on climate action, particularly with regards to renewable energy generation. For example, in September 2022 KFAED committed $2.5m to a UNDP project in Yemen to ensure energy access at critical health care infrastructure by leveraging solar power generation. At a regional scale, KFAED, together with the Islamic Development Bank and the Arab Fund for Economic and Social Development, is contributing funds to support the interconnection between Saudi Arabia and Egypt necessary for the exchange of renewable energy. This infrastructure will require an investment of $1.8bn.

Building Ties

In keeping with long-standing notions of Arab solidarity, Kuwait has prioritised development and humanitarian aid to other Arab countries, particularly at times of socio-political unrest such as the Arab Spring. Recently, however, South-South engagement has accelerated, and there are indications that KFAED is deepening its cooperation with international bodies under increasingly complex frameworks in search of a global reach.

In May 2021 it signed a partnership agreement with the UNDP to scale up support for countries and communities in crisis through approaches centered around the nexus of humanitarian aid, development and peace-building. More recently, in October 2022 KAFAED and the Development Bank of Latin America signed an agreement for the development of joint projects in fields ranging from transport and communications infrastructure, clean energy, health, water and sanitation to food security and education. As this expansion of aid continues, Kuwait’s growing global exposure will likely further its domestic agenda of economic diversification by leveraging the key foothold gained in global emerging markets through ODA.