Ratings agency Moody’s has affirmed Kuwait’s credit rating at “A1” with a stable outlook on a strong balance sheet and fiscal buffers.
The latest rating affirmation now reflects Kuwait’s macroeconomic and external stability. However, the lack of progress in reforms may reduce the vulnerability of the Gulf country’s economy, along with its government finances, to oil market volatility and long-term carbon transition risks.
The rating agency has confirmed that progress in economic and fiscal diversification away from hydrocarbons is not currently factored into its baseline assumptions, which may reduce Kuwait’s exposure to oil price fluctuations and long-term carbon transition.
“The recent dissolution of Parliament and temporary suspension of related constitutional articles aimed at overcoming institutional constraints has the potential to accelerate reforms,” Moody’s said further.
“By contrast, increasing global momentum towards carbon transition that significantly lowers the demand for and price of oil would likely weigh on Kuwait’s credit metrics and weaken the credit profile without fiscal and economic reforms,” the ratings agency noted.
Moody’s also projected that Kuwait’s financial assets, particularly the assets of the Future Generations Fund (FGF), will remain high, reaching 400% of the GDP by the end of 2023, one of the highest levels globally. Furthermore, public debt is expected to remain below 3% of GDP by the end of the 2023-24 fiscal year, one of the lowest in the world.
Moody’s also sees the Central Bank of Kuwait’s monetary policies, which depend on a basket of currencies, and the Kuwaiti Dinar’s peg to this basket, as solid foundations for financial stability and protection against the impact of inflation.
Talking about the “dissolution of Parliament,” reports now say that the 83-year-old Emir Meshal al-Ahmad al-Jaber al-Sabah has approved the formation of the new government, thereby averting an escalation of the political and institutional crisis in Kuwait for the time being.
The new executive led by Prime Minister Sheikh Ahmed al-Abdullah al-Sabah will now assume some powers, amid the unresolved clashes between ministers and deputies.
Kuwait is not new to political instability, as in the last five years, the Gulf nation’s Parliament has been dissolved on four occasions. The suspension happened only twice, in 1976 and 1986.
The new government, the 46th in the Gulf country’s history since 1962, will now be led by Sheikh Ahmed al-Abdullah al-Sabah, the emir’s nephew. It also consists of 13 ministers, nine of whom have retained their posts from the previous one, including key departments like Oil, Finance and Foreign Affairs.