Fitch affirms Kuwait at AA- with stable outlook

According to a Fitch Ratings statement, “Kuwait’s key credit strengths are its exceptionally strong fiscal and external balance sheets, while key weaknesses include frequent institutional gridlock and political constraints on reforms that would address fiscal and structural challenges stemming from heavy oil dependence, a generous welfare state and a large public sector."

The statement mentioned that Kuwait’s fiscal and external balance sheets remain among the strongest of Fitch-rated sovereigns, despite severe oil price swings since 2014.

“We forecast Kuwait’s sovereign net foreign asset position will average 470 percent of GDP in 2022-2024, the highest among all Fitch-rated sovereigns and more than 10x the ‘AA’ median.”

Finch Ratings continued “We forecast lower oil revenue in FY23 and FY24, assuming average oil prices of USD79/ bbl and USD61/bbl in those years and broadly stable output levels (around 2.7 million b/d). This will drive a narrowing of the budget surplus to 5.9 percent of GDP in FY23 and a return to deficit in FY24."

They also forecasted a marginal decline in nominal government spending to below KD 23 billion (USD 75.9 million), helped by an automatic decline in fuel subsidies and spending restraint across some budget lines in the context of lower oil prices.

“Excludes investment income, our forecasts would translate into budget deficits/GDP of 2 percent and close to 10 percent in FY23 and FY24 respectively. Combined with debt service of less than 1 percent of GDP, this corresponds to the government’s fiscal financing need. In FY24 we assume this will be met via 6 percent of GDP in net domestic and foreign borrowing and around 4 percent of GDP in drawdowns from GRF assets. If a debt law Is not passed this would imply higher drawdowns from GRF assets.”