Fitch Ratings Affirms Kuwait’s ‘AA-’ Credit Rating with Stable Outlook
Kuwait City, The Gulf Observer: Fitch Ratings has affirmed Kuwait’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘AA-’ with a Stable Outlook, citing the country’s exceptionally strong fiscal and external balance sheets.
Key Drivers of the Rating
Strong External Assets
Kuwait’s external balance sheet remains the strongest among Fitch-rated sovereigns, with sovereign net foreign assets projected to rise to 601% of GDP in 2025, primarily held in the Future Generations Fund (FGF) managed by the Kuwait Investment Authority (KIA).
Economic and Fiscal Developments
- The Kuwaiti government has initiated reforms to reduce reliance on oil revenue and improve fiscal efficiency, capping expenditure at KWD 24.5 billion (51% of GDP).
- A 15% Domestic Minimum Top-Up Tax (DMTT) on multinational corporations will take effect on January 1, 2025, aligning with OECD Pillar 2 requirements.
- The long-delayed excise tax is planned for FY 2025-26, but potential delays remain.
- Fitch projects a widening budget deficit, reaching 10% of GDP in FY25, largely due to lower oil prices and production quotas imposed by OPEC+.
Debt and Liquidity Outlook
- Government debt remains low, estimated at 2.9% of GDP in FY24, but is expected to rise to 6% in FY25 and 9.2% in FY26 if a liquidity law is enacted.
- Fitch assumes that Kuwait will resume borrowing, financing about 30% of the deficit while continuing to rely on General Reserve Fund (GRF) assets.
Challenges and Risks
- Kuwait’s economic dependence on oil remains a key vulnerability, with budgetary outcomes highly sensitive to oil price fluctuations. A USD 10/bbl change in oil price assumptions could impact the budget by 4% of GDP.
- Political governance challenges persist, with uncertainties regarding the implementation of fiscal reforms and a sustainable financing strategy.
Despite these challenges, Kuwait’s fiscal strength and substantial sovereign assets continue to support its strong credit rating, reaffirming its position as a financially resilient economy.
