Scenarios for electricity subsidy reform in the state of Kuwait

Kuwait ranks as the 10th largest exporter of crude oil, holding 7% of the world’s proven oil reserves, which are estimated at 101.5 billion barrels. Additionally, it is 30th in terms of gas reserves, with 1,784 billion cubic meters. The oil industry plays a vital role in Kuwait’s economy, accounting for approximately 90% of government revenue and 95% of total exports. A significant portion of the annual fiscal budget is dedicated to covering wages and subsidies, which together account for over 80% of the 2024–25 fiscal budget. Over the past 15 years, accumulated subsidies have reached $213 billion (KD 65.2 billion), with energy subsidies comprising nearly 54% of this total. This study proposes three scenarios for reforming electricity subsidies in the residential sector, which accounts for 34% of annual electricity demand. The findings suggest that reforming electricity subsidies in this sector could lead to substantial savings for the Ministry of Electricity and Water Resources and Engineering (MEWRE) budget without negatively affecting lowto mid-income families. The recovery of annual fuel costs is projected to range from 30% to 63%, depending on the reform scenario implemented, compared to only a 6% recovery rate under the current subsidy policy. The study concludes with several policy recommendations for a fair and equitable reform of electricity subsidies in the residential sector and suggests expanding the research to include other consumer sectors, such as investment, commercial and industrial sectors.