S&P confirms Kuwait’s sovereign rating at A+
The Central Bank of Kuwait (CBK) said on Friday that the international rating agency Standard & Poor’s (S&P) confirmed the sovereign rating of Kuwait at A+, with a stable future outlook due to a huge stock of government financial assets estimated at about 418 percent of the gross domestic product in 2024. In a statement, the Central Bank noted that the Standard & Poor’s report indicated that Kuwait’s structural and financial reforms are still lagging behind its peers, and its economy is considered among the most dependent on the oil sector among GCC countries, which exposes its economy to fluctuations in the oil market.
The statement added that Standard & Poor’s expected that the real gross domestic product would grow by 2.4 percent on average during the years 2025–2027, compared to a contraction of 2.3 percent in 2024, assuming a slight easing in the restrictions of the OPEC+ agreement on oil production. CBK also pointed out that the rating agency is also expected to accelerate the implementation of large government investment projects and focus on partnerships between the public and private sectors and high-impact projects led by the New Kuwait 2035 vision.
Regarding the rating prospects, the statement noted that the stable future outlook reflects the agency’s assumption that the large financial and external balances in Kuwait will continue to be strong during the forecast period, supported by a huge stock of government financial assets estimated at about 418 percent of the gross domestic product in 2024, which is among the largest sovereign funds of countries.
CBK noted that the agency expected these assets to reach 447 percent of the gross domestic product during the years 2024–2027, pointing out that these huge government assets are expected to mitigate the economic risks associated with the heavy dependence on the oil sector and potential fluctuations in oil prices. It stated that the agency listed the most important factors that could lead to a downgrade of the country’s sovereign credit rating in the
event of a significant increase in public financial imbalances driven by a decline in oil prices or the absence of financial reforms.
The rating could also be downgraded if the government remains without comprehensive financing arrangements for the deficits in the general budget, the report noted. CBK also said that the agency stated that the country’s credit rating could be improved if the government succeeds in implementing a comprehensive structural reform package, such as diversifying the economy away from the oil sector and increasing its production capacity, which leads to stronger prospects for growth.
Regarding the reasons for the classification, the agency noted that the Kuwaiti economy is still largely dependent on the oil sector, which represents approximately 90 percent of exports and government revenues and about 50 percent of the gross domestic product, as this sector contributed significantly to achieving surpluses.
The agency pointed out in its report that high government spending, including the very large wage and salary bill, ensures that large surpluses in the financial accounts will not be repeated, as Kuwait has suffered from a deficit throughout the past 10 years, with the exception of two fiscal years (2013-2014) and (2014-2015), expecting such deficits to continue for the fiscal years (2023/2024–2027/2028).
Regarding financial reforms, the agency expected that authorities in Kuwait would move to impose new selective taxes on tobacco and sugary drinks and increase fees on a group of government services, noting that it is unlikely to impose a value-added tax (VAT) with the possibility of passing the public debt law in the fiscal year 2025/2026.
Other financial reforms aimed at reducing the wage bill remain important but are under discussion, and the government seeks to increase the employment of citizens in the private sector. As for developments in the general budget of the country, the agency estimated the budget deficit in the fiscal year 2023-2024 at about 4.7 percent of the GDP. It was also estimated that the deficit in the fiscal year (20242025) would shrink to 3.1 percent of the GDP.
Regarding monetary policy and exchange rate policy, Standard & Poor’s expected that the Kuwaiti dinar’s exchange rate would continue to be linked to an undeclared weighted basket of currencies. Consumer price inflation (CPI) remained around 3.6 percent in 2023, down from 4 percent in 2022, the agency said, projecting that the CPI will moderate throughout the forecast period, averaging 2.3 percent in 2024–2027. It is lower than in many developed and emerging markets, it is estimated.
It did not envisage significant contingent liabilities for the government from the banking sector in Kuwait, which has demonstrated strong resilience and financial soundness over the past few years. It forecasted subdued credit growth in 2024 and 2025, rising in 2026–2027. The agency expected that banks’ high provision buffers would allow them to limit the increase in nonperforming loans (NPLs) ratios by writing off NPLs, which are already at a very low level and stood at 1.4 percent in December 2023. — KUNA