International ratings agency Moody’s Investors Service has upgraded the outlook on Kuwait’s Aa2 sovereign ratings from negative to stable after the parliament approved some long-awaited economic legislation and the country’s strong fiscal performance.   

Moody’s assigned a negative outlook to Kuwait in June 2009, but said at the time that it would change it to stable if relations between the government and parliament improved.

“Since the formation of a new government in June 2009, a number of important pieces of economic legislation have been passed by the Kuwaiti parliament,” said Tristan Cooper, Moody’s chief analyst for Middle East sovereigns.

The new legislation includes a privatisation law, a four-year development plan, a capital markets law and a labour law.

Moody’s believes that these laws, despite some limitations, should help to develop the country’s limited private sector and attract foreign investment.

“In addition, Kuwait has continued to post impressive fiscal and external current account surpluses despite some adverse effects from the recent global financial crisis,” added Cooper.

Moody’s currently has a negative outlook for Kuwait’s banking system, reflecting concerns, particularly among investment companies, as well as more general industry concentrations to commercial real estate and stock market investments.   

“However, from a sovereign perspective, these weaknesses are offset by the very strong financial position of the government, which can afford to provide substantial support to Kuwait’s banking sector in case of systemic difficulties,” explained Cooper.

The International Monetary Fund (IMF) published a report at the end of July which said that Kuwait’s economic outlook for 2010 is “broadly positive”. It is expected to see real gross domestic product (GDP) growth of 2 per cent this year, with the non-oil sector to grow at about 2.5 per cent on the back of government spending under its four-year development plan.