Standards & Poor’s Financial Services (S&P) has affirmed its “AA” long-term and “A-1+” short-term foreign and local currency credit ratings on Kuwait, the ratings agency said in a report on Friday.
“The stable outlook reflects our expectation that Kuwait's public and external balance sheets will remain strong over the next two years, backed by a significant stock of financial assets,” S&P said. “We expect these strengths to offset risks related to volatile oil prices, Kuwait's undiversified economy, and rising geopolitical tensions in the region.”
The ratings could be lowered if the country’s political stability deteriorates or geopolitical risks escalate.
The ratings on Kuwait continue to be supported by the sovereign's high levels of accumulated fiscal and external buffers.
Kuwait derives around 55 percent of gross domestic product (GDP), more than 90 percent of exports, and about 90 percent of fiscal receipts from hydrocarbon products. Given this high reliance on the oil sector, Kuwait's economy is viewed as undiversified, the report said.
“We expect rising oil production from the second half of 2018 and public investment to drive real GDP growth of 2.8 percent on average over 2018-2021,” it said.
The temporarily higher oil prices will support a further reduction in the deficit to 10.6 percent of GDP in fiscal 2018.
The government is expected to delay some fiscal reforms in light of higher oil prices, particularly the introduction of the value-added tax (VAT), leading to continued central government budget deficits, S&P added.
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