S&P Global Ratings expects Kuwait to continue to hold extremely large government and external net asset positions, which will allow authorities to gradually implement reforms.
S&P has affirmed its (AA/A-1+) long and short-term foreign and local currency sovereign credit ratings on Kuwait, with stable economic outlook.
In a statement, S&P said that the stable outlook reflects expectation that Kuwait’s public and external balance sheets would remain strong over the next two years, backed by a significant stock of financial assets.
The ratings are constrained by concentrated nature of economy as well as regional geopolitical tensions. Kuwait derives around 55 per cent of GDP, more than 90 per cent of exports as well as 90 per cent of fiscal receipts from hydrocarbon products.
S&P forecasted economic activity in Kuwait to pick up over the next four years after contracting in 2017, the increase in oil production from the second half of 2018 and public investment is expected to drive real GDP growth of 2.8 per cent on average over 2018-2021.
Additionally, the rating agency expects the government of Kuwait to delay some fiscal reforms in light of higher oil prices, particularly the introduction of VAT which will lead to continued central government budget deficits.
The Parliament delayed passing of a new debt law after the previous one expired in October 2017, obstructing any debt issuance thus far in 2018. As a result, the government has resorted to drawing down from the KIA’s General Reserve Fund (GRF) to meet its funding needs.
S&P expected the government to pursue a more balanced financing strategy between new debt and asset drawdown from 2019, subject to parliamentary approval of the debt law. Kuwait issued its first sovereign international bond of $8 billion in 2017, and will likely continue to tap external bond markets given current favourable rates, particularly compared with external asset returns.