Kuwait awarded stable outlook by Moody’s

11 June 2018
Kuwait’s credit profile based on considerable hydrocarbon reserves and low government debt

Kuwait's credit rating of Aa2 stable reflects the country's substantial oil and gas reserves, historic fiscal and balance of payments surpluses, and comparatively low levels of government debt, Moody's Investors Service has said in an annual report.

Kuwait's key credit challenge is its very high dependence on oil and the resulting volatility for its economy, exports and government finances. The country has been slower than its regional peers in developing non-oil and private sectors, the credit ratings agency said.

Moody’s research is an update to the markets and does not constitute a rating action.

"Kuwait's credit profile would be supported by a steady diversification of government revenues and economic activity away from the oil sector," said Thaddeus Best, a Moody's Analyst and co-author of the report.

"Sustained improvements to the institutional framework, in particular government transparency and reporting standards, would also be positive," Best was quoted as saying in a press note.

The importance of the oil and gas sector leads to huge swings in the Kuwaiti economy during times of volatile global oil prices.

Non-hydrocarbon growth has been supported by the current five-year National Development Plan (2015-19), which provides direction for prioritising capital expenditure, encouraging private investment and creating jobs for nationals in the private sector.

Public and private investment are expected to sustain non-hydrocarbon growth rates of 3.5 to 4 per cent between 2018 and 2021, the New York-based agency said.

Institutional strength and government effectiveness were tested during the oil price slump, with Kuwait's pace of reform much slower than for other GCC peers.

Reform implementation is likely to be further delayed as oil prices hold steady.

Despite rising government debt levels and Moody's expectation that government revenues will remain heavily reliant on hydrocarbon revenues for the foreseeable future, Kuwait will maintain an extraordinarily strong government balance sheet and an overall net asset position.

Moody's estimates that the budget balance will return to a surplus of around 7 per cent of GDP in the 2018-19 fiscal year, largely driven by rising oil prices.

A further sustained oil price fall, a marked worsening in the fiscal balance and signs of falling government financial assets would exert downward pressure on Kuwait's sovereign rating.

A deterioration in institutional capacity sufficient to sustain its current creditworthiness would also be credit negative, Moody’s stated.

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