Fitch maintains Kuwait’s ’AA-’ rating with stable outlook

Investing.com -- Fitch Ratings has confirmed Kuwait’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ’AA-’ with a stable outlook on March 7, 2025. This rating is underpinned by Kuwait’s robust financial and external balance sheets, despite the country’s reliance on oil and a large public sector that could exert long-term fiscal pressure.

Kuwait’s external balance sheet is the strongest among all Fitch-rated nations. The agency forecasts that Kuwait’s sovereign net foreign assets will increase to 601% of GDP in 2025, up from an estimated 582% of GDP in 2024. The majority of these assets are managed by the Kuwait Investment Authority (KIA) and are held in the Future Generations Fund and the General Reserve Fund (GRF), the government’s treasury account.

The recently-appointed government has initiated reforms to reduce dependence on oil revenue, enhance government efficiency, and rationalize spending. The government has also introduced a 15% domestic minimum top-up tax (DMTT) on multinational companies, effective from January 1, 2025. This tax is expected to generate about 0.5% of GDP annually, with collections expected to start by 2027.

The government is also aiming to pass a liquidity/debt law, which would allow Kuwait to raise new debt, following the expiry of the previous debt law in 2017. However, the timeframe for this law’s implementation remains uncertain. Despite this, the government should be able to meet its financing obligations in the coming years, given the substantial assets at its disposal.

Fitch expects Kuwait’s budget position to deteriorate in the fiscal year ending March 2026 (FY25), due to a decline in oil revenue from lower oil prices and OPEC+’s delay in unwinding oil production quotas. Non-oil revenue is expected to grow modestly in FY25, but it will likely fall short of the government’s target of KWD2.9 billion (6% of GDP).

Kuwait’s fiscal break-even oil price (including investment income) is estimated at USD58/bbl in FY25-FY26. Gross government debt/GDP remains low, at an estimated 2.9% in FY24. Assuming the passage of a liquidity law in FY25, Fitch forecasts government debt/GDP will rise to 6% in FY25 and 9.2% in FY26.

Ongoing conflicts in the Middle East and disruptions to Red Sea shipping have had a minimal impact on Kuwait, which has large government assets that provide a buffer to support the economy if tensions were to escalate. However, the country’s heavy reliance on hydrocarbons does pose a risk to its budgetary outcomes, making them highly sensitive to oil prices.

While the dissolution of parliament has eased gridlock, it could also negatively affect voice and accountability. Uncertainties over the implementation of a transparent and sustainable financing strategy weigh on the rating.

In terms of ESG considerations, Kuwait has an ESG Relevance Score (RS) of ’5[+]’ for Political Stability and Rights and the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in Fitch’s proprietary Sovereign Rating Model.

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