Arab News, Mon, Jun 10, 2024 | Dhu al-Hijjah 4, 1445
Kuwait receives ‘A+’ rating, despite oil dependency: S&P report
Kuwait :
A strong stock of government financial assets has cemented Kuwait’s standing as
it secures an ‘A+’ rating from Standard & Poor.
In its latest report, the global rating agency
affirmed Kuwait’s sovereign rating with a stable outlook, primarily attributing
it to government financial assets supporting around 418 percent of the nation’s
gross domestic product in 2024.
S&P pointed out that Kuwait’s structural and
financial reforms are still lagging behind its peers, and its economy remains
highly dependent on the oil sector, making it vulnerable to fluctuations in the
oil market.
Despite these challenges, the rating agency
anticipates the real GDP to grow by an average of 2.4 percent during the years
2025-2027, compared to a contraction of 2.3 percent in 2024. This forecast
assumes a slight easing in the restrictions of the Organization of the Petroleum
Exporting Countries agreement on oil production.
The report also highlighted the expected
acceleration of large government investment projects, with a focus on
public-private partnerships and high-impact projects driven by the New Kuwait
2035 vision.
The national strategy aims to transform Kuwait
into a financial and trade hub regionally and internationally, making it more
attractive to investors.
The stable future outlook reflects the assumption
that Kuwait’s substantial financial and external balances will remain robust
during the forecast period, supported by a significant stock of government
financial assets projected to reach 447 percent of the GDP between 2024 and
2027.
“We could raise the ratings if the government
successfully implemented a comprehensive structural reform package, such as
diversifying the economy away from the hydrocarbon sector and increasing its
productive capacity, leading to stronger real GDP growth prospects,” the report
indicated.
These substantial assets are anticipated to
mitigate the economic risks associated with the country’s heavy reliance on the
oil sector and potential fluctuations in oil prices.
“Kuwait, largely via KIA (Kuwait Investment
Authority) funds but also due to very low levels of government debt, remains in
a very large general government net asset position,” the report said.
S&P also emphasized that a downgrade in Kuwait’s
sovereign credit rating could be triggered by several reasons.
“We could lower our ratings on Kuwait if fiscal
imbalances rise significantly, for instance due to weaker oil prices or the
absence of fiscal reforms, and the government were to remain without
comprehensive fiscal financing arrangements,” the report said.