RAM Ratings reaffirms Kuwait’s gAA3(pi)/P1 rating

Published on 27 April 2015

RAM Ratings has reaffirmed the respective global-scale and ASEAN-scale sovereign ratings of Kuwait at gAA3(pi)/stable and seaAAA(pi)/stable. The reaffirmation of the ratings is based on our opinion that Kuwait’s exceptional twin surpluses, its large fiscal buffers, and excellent net external position will remain largely intact despite the decline in crude oil prices. Structural weaknesses endemic to the region, as well as imbalances in the structure of the economy and the labour market, remain largely unaddressed.

“The strength of Kuwait’s twin surpluses is such that even with oil prices forecasted to average USD60 per barrel this year, its fiscal and current-account surpluses in 2015 are expected to remain healthy,” notes Esther Lai, Head of RAM’s Sovereign Ratings. “Its fiscal breakeven oil price is also the lowest in the GCC, despite government revenues having the highest level of dependence on oil, and government debt standing at a mere 3% of GDP,” she adds.

Kuwait is one of the largest oil producers and exporters in the world, and sits on an estimated 105 years of proven oil reserves at current production levels. High crude prices have driven the growth of Kuwait’s sovereign wealth fund – estimated to amount to over USD550 billion, making it one of the world’s largest – and lifted its net external position to over 240% of GDP, the highest of all RAM-rated sovereigns.

Economic diversification and capital expenditure have typically been hindered by political gridlock, leading to an excessive dependence on oil for economic growth and fiscal revenues. There are, however, early signs of increased cooperation between the parliament and the cabinet, as evinced by the passage of several major investment reforms.

The ratings could be adjusted upwards if there is a sustained improvement in the business environment that leads to greater investments and economic diversification, as well as a demonstrated sustainable non-oil fiscal path for the government. Conversely, the ratings could face downward pressure from protracted softness in crude oil prices that would erode Kuwait’s fiscal and external strength, although this is viewed as unlikely given the enormous size of its buffers.

Media contact
Barry Ooi
(603) 7628 1106
barry@ram.com.my