Mubasher: Standard and Poor's Global Ratings (S&P) has maintained Kuwait's credit rating at AA with a stable outlook, according to a recent report issued late Friday.
The ratings agency said that the stable outlook reflected its expectation that Kuwait's public and external balance sheets will remain strong over the forecast horizon, backed by a significant stock of financial assets.
Kuwait's internal and external financial positions to have a strong future economic outlook are backed by huge financial assets, the report indicated.
The sharp fall in oil prices since 2014 has caused a significant deterioration in Kuwait's income levels, as measured by GDP per capita, as well as in its fiscal and external metrics, as has happened with other large oil exporters. However, the creation of large fiscal and external assets via the transfer of past oil windfalls has afforded Kuwaiti policymakers the space to counter slowing growth by increased spending, particularly on infrastructure projects, the report further explained.
As a result, the economy has remained relatively resilient and job losses, particularly in the public sector, have been minimal.
"We estimate that real GDP grew by 3% in 2016 supported by public investment growth. Over 2017-2020, we expect the economy to grow at a similar pace on average supported by public spending on infrastructure projects," the ratings agency noted.
"We also expect a boost to growth as increased capacity from investments in gathering centers and upgrades to existing oil fields gradually come on stream, over the forecast horizon. We expect Kuwait will remain compliant with its commitment to OPEC to cut production to 2.7 million barrels per day (bpd) until the end of 2017.
“From then on, we anticipate that Kuwaiti oil output will rise to over three million bpd in 2020. Production could increase further if an ongoing dispute in the shared neutral zone with Saudi Arabia is fully resolved,”
The report also identified geopolitical tensions, as the IS militant group in Iraq and Syria, as well as the ongoing war in Yemen, as the major threats to the wider region and Kuwait.
S&P Global Ratings projects that the current account will return to a surplus in 2019 in line with our assumptions on oil prices and production. Until then we anticipate deficits will be financed by a mix of external borrowing, primarily via sovereign debt issuance, and the liquidation of external assets.
"We view Kuwait's financial system as stable; its banks are reasonably well capitalized, with ample liquidity as per Basel III standards, and operate in a reasonably strong regulatory environment.
The agency said that the banking industry country risk assessment for Kuwait is 4, on a scale of 1 (strongest) to 10 (weakest).
