S&P main­tains Kuwait rat­ing, out­look sta­ble

Kuwait Times - - FRONT PAGE -

KUWAIT: S&P Global has main­tained Kuwait’s credit rat­ing at AA with a sta­ble out­look. On its web­site late Fri­day, the rat­ing agency said the sta­ble out­look re­flected its ex­pec­ta­tion that Kuwait’s pub­lic and ex­ter­nal bal­ance sheets will re­main strong over the fore­cast hori­zon, backed by a sig­nif­i­cant stock of fi­nan­cial as­sets. Its re­port said that Kuwait’s in­ter­nal and ex­ter­nal fi­nan­cial po­si­tions are ex­pected to have a strong fu­ture eco­nomic out­look backed by huge fi­nan­cial as­sets.

The sharp fall in oil prices since 2014 has caused a sig­nif­i­cant de­te­ri­o­ra­tion in Kuwait’s in­come lev­els - as mea­sured by GDP per capita - as well as in its fis­cal and ex­ter­nal met­rics, as has hap­pened with other large oil ex­porters. How­ever, the cre­ation of large fis­cal and ex­ter­nal as­sets via the trans­fer of past oil wind­falls has af­forded Kuwaiti pol­i­cy­mak­ers the space to counter slow­ing growth by in­creased spend­ing, par­tic­u­larly on in­fra­struc­ture projects.

As a re­sult, the econ­omy has re­mained rel­a­tively re­silient and job losses, par­tic­u­larly in the pub­lic sec­tor, have been min­i­mal. “We es­ti­mate that real GDP grew by three per­cent in 2016 sup­ported by pub­lic in­vest­ment growth. Over 2017-2020, we ex­pect the econ­omy to grow at a sim­i­lar pace on av­er­age sup­ported by pub­lic spend­ing on in­fra­struc­ture projects,” it noted.

The first pub­lic-pri­vate part­ner­ship (PPP) projects have been com­pleted since the PPP law came into force in 2015. Over the next few years, other projects in power, in­fra­struc­ture, and hous­ing, cur­rently in var­i­ous stages of im­ple­men­ta­tion, are likely to be com­pleted. This will help main­tain eco­nomic growth, off­set­ting the ef­fects of low oil prices.

“We also ex­pect a boost to growth as in­creased ca­pac­ity from in­vest­ments in gath­er­ing cen­ters and up­grades to ex­ist­ing oil fields grad­u­ally come on stream, over the fore­cast hori­zon. We ex­pect Kuwait will re­main com­pli­ant with its com­mit­ment to OPEC to cut pro­duc­tion to 2.7 mil­lion bar­rels per day (bpd) un­til the end of 2017. From then on, we an­tic­i­pate that Kuwaiti oil out­put will rise to over three mil­lion bpd in 2020. Pro­duc­tion could in­crease fur­ther if an on­go­ing dis­pute in the shared neu­tral zone with Saudi Ara­bia is fully re­solved.”

The agency added that geopo­lit­i­cal ten­sions per­sist, with the IS mil­i­tant group in Iraq and Syria, as well as the on­go­ing war in Ye­men, pos­ing a threat to the wider re­gion and Kuwait. In Kuwait’s case, it ex­plained, the cen­tral gov­ern­ment deficit in­forms the cen­tral gov­ern­ment’s fi­nanc­ing re­quire­ment while the over­all gen­eral gov­ern­ment bal­ance in­cludes all lev­els of gov­ern­ment, in­clud­ing flows re­lated to the Kuwait In­vest­ment Author­ity (KIA).

The cen­tral gov­ern­ment fis­cal deficit is likely to close faster if some of the mea­sures the gov­ern­ment is cur­rently con­sid­er­ing, such as the in­tro­duc­tion of a flat cor­po­rate tax and a value-added tax, are im­ple­mented. How­ever, we do not an­tic­i­pate that th­ese are likely to come into force be­fore 2019 at the ear­li­est. The Kuwaiti gov­ern­ment, via the KIA, has ac­cu­mu­lated sub­stan­tial as­sets through sav­ings from oil and gas pro­duc­tion over the years. The size of as­sets man­aged by the KIA is avail­able only as a range of un­of­fi­cial es­ti­mates of up to 5x of 2017 GDP. Weak oil prices prompted Kuwait’s first cur­rent ac­count deficit of 4.5 per­cent of GDP in 2016 com­pared to a sur­plus of 3.5 per­cent in 2015 and an av­er­age sur­plus of nearly 40 per­cent over 2010-2014. The deficit was fi­nanced by the liq­ui­da­tion of as­sets held abroad.

“We project that the cur­rent ac­count will re­turn to a sur­plus in 2019 in line with our as­sump­tions on oil prices and pro­duc­tion. Un­til then we an­tic­i­pate deficits will be fi­nanced by a mix of ex­ter­nal bor­row­ing - pri­mar­ily via sov­er­eign debt is­suance - and the liq­ui­da­tion of ex­ter­nal as­sets.

“Even then we es­ti­mate that Kuwait’s net ex­ter­nal as­set po­si­tion will re­main very strong at 7.5x cur­rent ac­count re­ceipts (CARs) in 2017. More­over, we project that gross ex­ter­nal fi­nanc­ing needs will re­main rel­a­tively low, av­er­ag­ing about 100 per­cent of CARs plus us­able re­serves over the next four years.” On its ex­ter­nal ac­counts, Kuwait’s met­rics are very strong, and stronger than those of al­most all peers, in­clud­ing in the GCC, the re­port said. Kuwait’s ex­change rate is pegged to an undis­closed bas­ket of cur­ren­cies; this bas­ket is dom­i­nated by the US Dol­lar, the cur­rency in which the ma­jor­ity of Kuwaiti ex­ports are priced and trans­acted.

“We view Kuwait’s fi­nan­cial sys­tem as sta­ble; its banks are rea­son­ably well cap­i­tal­ized, with am­ple liq­uid­ity as per Basel III stan­dards, and op­er­ate in a rea­son­ably strong reg­u­la­tory en­vi­ron­ment. Our Bank­ing In­dus­try Coun­try Risk As­sess­ment for Kuwait is ‘4’, on a scale of ‘1’ (strong­est) to ‘10’ (weak­est).”


A run­ner makes her way on the Tsan­fleu­ron Glacier dur­ing the last kilo­me­tres of the Glacier 3000 run and marathon above Les Di­ablerets yes­ter­day. A to­tal of 1,200 run­ners took part in the 26-km run or in the marathon dis­tance. The 42-km moun­tain run, or­ga­nized for the first time, is be­ing called the hard­est in Switzer­land for 2017, with an al­ti­tude gain of 2,757 m start­ing from the cen­ter of Gs­taad

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