The Standard and Poor’s (S&P) global ratings affirmed its long- and short-term foreign and local currency sovereign credit ratings on Kuwait at “A+/A-1 with a negative outlook.
According to the rating agency, the negative outlook primarily reflects risks over the next 12–24 months relating to government’s ability to overcome the institutional roadblocks preventing it from implementing a financing strategy for future deficits.
The agency also stated that despite higher oil prices and production levels, Kuwait’s central government deficit are set to average 12 percent of Gross Domestic Product (GDP) through 2025, among the highest of all rated sovereigns.
The government has almost exhausted the General Reserves Fund’s liquidity, having yet to reach an agreement with parliament on a comprehensive fiscal funding strategy, which presents financial risks for the state, particularly when oil prices decline.
“Following the conclusion of the National Dialogue, relations between the executive and legislature appear on the mend, increasing the likelihood that they will approve the debt law and fiscal consolidation plan. We could lower the ratings if elevated central government deficits persist over the medium term, with no sustainable comprehensive financing arrangements agreed,” S&P said.
However, it also said that it could revise the outlook to stable if the government successfully addresses Kuwait’s existing fiscal funding constraints, for example, through a combination of debt law adoption, authorization to withdraw specified amounts from the Future Generations Fund (FGF) when required, and a fiscal consolidation program.
Oil-rich Kuwait is the only Gulf monarchy to provide an elected parliament significant powers, including the ability to block bills and question ministers. Disputes between the cabinet and the assembly have resulted in a series of government reshuffles and parliament dissolutions over the years, stifling investment and reform.