Kuwait Ratings Lowered To 'AA-' On Lower Oil Prices And Slow Reform Progress; Outlook Stable

  • Materially lower oil prices in 2020 and 2021 will have negative economic and fiscal implications for Kuwait, given the country's high reliance on hydrocarbon exports.
  • The oil price drop is happening alongside Kuwait's slow reform momentum, which has generally lagged that of other regional countries in recent years.
  • We are consequently lowering our long-term ratings on Kuwait to 'AA-' from 'AA'.
  • The outlook is stable because we believe Kuwait's sizable fiscal and balance-of-payments buffers provide the government with headroom for policy measures over the next two years.

Rating Action

On March 26, 2020, S&P Global Ratings lowered its long-term foreign- and local-currency sovereign credit ratings on Kuwait to 'AA-' from 'AA'. The outlook is stable.
At the same time, we affirmed our 'A-1+' short-term foreign and local currency sovereign credit ratings on Kuwait.
We revised our transfer and convertibility assessment for Kuwait to 'AA' from 'AA+'.
As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on Kuwait are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see "Calendar Of 2020 EMEA Sovereign, Regional, And Local Government Rating Publication Dates," published Dec. 20, 2019, on RatingsDirect). Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case, the reason for the deviation is S&P Global Ratings' revision of its hydrocarbon price assumptions for 2020 and beyond. The next scheduled publication on the sovereign rating on Kuwait will be on July 17, 2020.

Outlook

The stable outlook reflects the balance between risks from Kuwait's high reliance on the hydrocarbons sector and delays to structural reforms, against the country's sizable accumulated fiscal and balance-of-payments buffers, which provide the authorities policy space to maneuver over the short to medium term.
Downside scenario
We could lower the ratings over the next two years if reform efforts, such as taxation and labor market changes, and measures to diversify the economy remain sluggish, increasing the burden on Kuwait's fiscal and balance-of-payments metrics. We could also lower the ratings if we considered that Kuwait's monetary policy flexibility had reduced or regional geopolitical tensions materially deteriorated, with potential disruptions to key trade routes.
Upside scenario

We could raise the ratings if wide-ranging political and economic reforms enhanced institutional effectiveness and improved long-term economic diversification, although we think such a scenario is unlikely over our forecast horizon 2020-2023.
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