Moody’s maintains Kuwait rating at Aa2
Outlook for credit rtg stable
Kuwait’s credit profile is supported by the government’s exceptionally strong balance sheet, with assets in the Kuwait Investment Authority (KIA) estimated to exceed 550 percent of GDP, roughly 29 times outstanding government debt in 2016.
Vast hydrocarbon reserves are estimated to exceed 88 years at cur+rent rates of production, the credit rating agency Moody’s Investors Service reported on Tuesday.
However, the government remains highly dependent on these oil revenues, rendering it vulnerable to oil price volatility.
The outlook for Kuwait’s Aa2 rating is stable. Fiscal challenges arising from a period of lower for longer oil prices are balanced by vast sovereign asset buffers, a low fiscal breakeven oil price, and a gradual fiscal and economic reform programme which should ultimately lower exposure to the oil sector.
Steady diversification of government revenues and economic activity away from the oil sector could apply upwards pressure on the rating.
Additionally, sustained improvements to the institutional framework, in particular in government transparency and reporting standards, would be credit positive.
“We would consider a negative rating action if Kuwait’s reform momentum were to slow beyond the already anticipated, slower-thanpeer pace, for example, in the event that parliamentary resistance blocks or forces the reversal of planned reforms to government finances and the management of government debt,” Moody’s said in its report.
In addition, a further sustained fall in the price of oil, a further marked worsening in the fiscal balance for which there was no clear plan for
reversal, and/or signs of falling government financial assets would also exert downward pressure on the rating. A deterioration in the domestic or regional political environment resulting in disruptions to oil production and/or a deterioration in the business climate would also be credit negative.
“We have adjusted Kuwait’s score for economic strength upwards from the indicative “Moderate (-)” to “High (+)” to reflect the country’s exceptionally high wealth levels, as well as its substantial hydrocarbons endowment.” According to the 2017 BP Statistical Review of World Energy, in 2016 the country had the seventh largest proved oil reserves in the world and the second largest within the group of Gulf Cooperation Council (GCC) countries, after Saudi Arabia (A1 stable).
At the current rate of production, these reserves would last for almost
90 years. This translates into high levels of national wealth, and the IMF estimates Kuwait’s GDP per capita in purchasing power terms at approximately $71,887 in 2016, the sixth-highest amongst rated sovereigns and slightly higher than Norway’s (Aaa stable).
However, the very high dependence on the oil sector has led to wide fluctuations in economic performance. Oil-sector GDP accounted for an average of 62 percent of total nominal GDP between 201115, and the oil price shock has significantly reduced nominal GDP. In addition, partly because of its vast oil wealth, Kuwait has been slower than other highly rated GCC governments to develop its nonoil sector through encouraging private sector activity or attracting foreign investment. This has resulted in an oversized public sector relative to the private sector.