Credit rating agency S&P Global Ratings has downgraded Kuwait’s rating for the second time in less than two years citing the Gulf state’s lack of a funding strategy to finance its deficit.
Last year Kuwait was hit hard by lower oil prices and the COVID-19 pandemic as well as the country continues to face liquidity risks largely because the parliament has not authorized government borrowing due to a standoff.
According to the statement, the sovereign credit rating was cut one level to A+ from AA-, the fifth-highest investment-grade level. S&P now rates Kuwait two notches lower than Fitch Ratings and on par with Moody’s Investors Service, which lowered its own assessment of the country last year for the first time. S&P’s outlook for Kuwait is negative.
“The downgrade reflects a persistent lack of a comprehensive funding strategy despite the central government’s ongoing sizeable deficits. Due to parliamentary opposition, the government has so far been unable to pass a law giving it the authority to issue debt or gain immediate access to its large stock of accumulated assets,” according to S&P analysts.
Kuwait’s economy will grow by only 0.5 percent in real terms in 2021, following an 8.9 percent contraction last year on oil production cuts and pandemic effects, according to S&P.
S&P expects central government deficits to average 17 percent of gross domestic product annually between 2021 and 2024. In the fiscal year that ended in March, the country ran a central government deficit of 33 percent of GDP, the rating agency estimated.
Despite a sluggish pace of reforms, the agency said it still expected Kuwait to eventually adopt a debt law that would allow the government to borrow or overcome parliamentary opposition to gain access to funding alternatives. S&P had already cut the rating of the country last year due to lower oil prices.
Kuwait is the only Gulf monarchy to give substantial powers to an elected parliament, which can block laws and question ministers. Frequent rows between the cabinet and assembly have led to successive government reshuffles and dissolutions of parliament over decades, hampering investment and reforms.