Kuwait was downgraded by one notch to A+ from AA- with a negative outlook by S&P on Friday. The rating action has been initiated as the sovereign lacks a comprehensive funding strategy even as the government faces an ongoing budget deficit which was ~33% of GDP as of FY ending March 2021, the highest globally as per S&P. Aided by the recovery in oil prices, S&P forecasts the nation’s deficit to be averaging ~17% of GDP over 2021-2024. The oil rich country has not been able to borrow funds to meet its deficit since the expiry of it’s debt law in 2017 due to a standoff between the parliament and the government over the utilization of the Future Generations Fund (FGF). This has led to depletion of its General Reserve Fund (GRF) which could weaken the economy due to disorderly spending. This could also have adverse implications on the nation’s ability to tap offshore debt markets. Although there is a delay in reaching a comprehensive funding strategy, the rating agency expects the government to overcome the parliamentary opposition.
S&P said, “Due to parliamentary opposition, the government has so far been unable to pass a law giving it the authority to issue debt or gain immediate access to its large stock of accumulated assets. The pace of structural reforms in Kuwait also remains sluggish: the long-discussed adoption of new taxes and broad expenditure adjustments has largely stalled. We consider that these persistent delays could ultimately leave Kuwait more vulnerable to potential future terms-of-trade shocks.” and added that the ratings “remain supported by the country’s high accumulated fiscal and external buffers, which mitigate the undiversified nature of the economy.”
For the full story, click here