Kuwait upgraded to ’AA-/A-1+’ by S&P on reform progress

Investing.com -- S&P Global Ratings raised Kuwait’s sovereign credit ratings to ’AA-/A-1+’ from ’A+/A-1’ on Friday, citing fiscal reform momentum and reduced funding constraints.

The ratings agency maintained a stable outlook, reflecting expectations that Kuwait’s public and external balance sheets will remain very strong, supported by significant government financial assets.

Kuwait’s recently implemented financing and liquidity law has eased budgetary constraints and paved the way for comprehensive financing arrangements. In October, the government issued three international bonds totaling $11.25 billion, approximately 7% of GDP, marking its first capital market issuance since 2017.

S&P estimates Kuwait’s liquid assets will average about 534% of GDP over 2025-2028, among the strongest ratios of all rated sovereigns, due to assets accumulated since 1953 within the Kuwait Investment Authority (KIA).

Despite this strength, S&P forecasts headline fiscal deficits to remain high, averaging 7% of GDP over 2025-2028 compared with 2% in 2024, based on lower oil price assumptions of $60 per barrel for 2026 and $65 per barrel from 2027 onward.

The agency expects these deficits will be financed through a combination of debt issuances and drawdowns from the General Reserve Fund, which manages government proceeds and provides financing for expenditures.

Gross government debt is projected to increase to about 24% of GDP by 2028 from about 13% at year-end 2025. However, Kuwait is expected to maintain a strong net asset position due to KIA’s large asset holdings.

Economic growth is forecast to accelerate to an average of 2% over 2025-2028 after two consecutive years of contraction due to declining oil production under OPEC quotas. Growth will be driven by easing fiscal constraints, modest increases in oil production, and large-scale capital projects.

The dissolution of Kuwait’s parliament in May 2024 could potentially speed up reforms, according to S&P. During the parliamentary suspension, the cabinet has been tasked with expediting reforms, including raising non-oil government revenue, containing expenditure, optimizing procurement, and improving public entity performance.

Kuwait’s economy grew by 1.3% in the first half of 2025 compared to the same period in 2024, with the non-oil sector expanding by 2.5% year-on-year. Strong performance was seen in construction (7.8%), real estate (5.2%), financial services (2.6%), and manufacturing (2.2%).

Major investment projects supporting growth include the Northern Economic Zone, Mubarak al-Kabeer port, energy projects, and Kuwait International Airport’s expansion. The country’s per capita GDP is forecast at $31,000 for 2025, rising to about $32,700 by 2028.

Despite lower oil prices, Kuwait posted a current account surplus of 13% of GDP in the first half of 2025. S&P forecasts current account surpluses will moderate to an average of 21% of GDP over 2025-2028, down from 29% in 2024.

The ratings agency also revised upward its transfer and convertibility assessment on Kuwait to ’AA’ from ’AA-’.

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