Wednesday, 8 May , 2019     |     1851      |      +      |     

Moody’s affirms Kuwait’s AA2 rating while keeping outlook stable

Moody’s affirms Kuwait’s AA2 rating while keeping outlook stable : Google
  • Business

Moody’s affirmed Kuwait’s credit rating at AA2 and kept its outlook at stable noting that the Gulf country maintained creditworthiness on the back of large hydrocarbon reserves.

Kuwait’s extremely high fiscal strength will be largely preserved through oil price fluctuations and long-term demographic pressure, the credit ratings agency said in a note on Thursday.

“In particular, it assumes that the authorities overcome the current legislative hurdles and pass a debt law that allows the government to finance its deficit without depleting its most liquid assets,” it added.

Kuwait, which has one of the lowest breakeven prices for oil in the Gulf, has enjoyed a good start to the year, with the recovery in oil prices.

Brent was trading at $70 per barrel last month. The GDP of Opec’s fifth largest oil producer, is projected to grow at 2.5 per cent this year, up from 1.7 per cent last year and a 3.5 per cent contraction in 2017, according to the IMF.

Moody’s rates Kuwait as one of the strongest sovereigns, with assets under its wealth fund amounting to around 370 per cent of GDP at the end of fiscal year 2018-2019.

The sovereign assets were around 27 times the government debt, with Kuwait expected to continue running large fiscal deficits.

However, with oil prices expected to fluctuate between $50 to $70 per barrel medium term, the increase in debt burden will be from a very low base.

The agency expects Kuwait to finance its deficits by drawdowns from the General Reserve Fund, even as it continues to accumulate wealth in its Future Reserves Fund, which contains much of the state’s sovereign assets.

The budget deficit for the fiscal year 2018-19 is expected to narrow to 5.2 per cent of the GDP due to higher than budgeted oil prices. Significant fiscal reforms, such as the VAT regimes implemented in neighbouring UAE and Bahrain, as well as taxes on tobacco and sugary drinks, could be implemented over the next few years.

However, the agency does not expect Kuwait to do anything to rein in the public sector wage bill, which currently accounts for 41 per cent of government expenditure.

Progress on reforms will be materially slower than elsewhere in the region, particularly if lower oil prices no longer exert pressure to drive much-needed fiscal reforms.

Budget deficit is expected to average around 9 per cent of GDP over the next few years, added Moody’s.

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Category: #Business | 2019/05/08 latest update at 12:00 AM
Source : The National | Photocredit : Google
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