Moody’s affirms #Kuwait ‘A1’ rating

Moody’s affirms Kuwait ‘A1’ rating

Moody’s Investors Service (“Moody’s”) affirmed the Government of Kuwait’s long-term local and foreign currency issuer ratings at A1. The outlook remains stable.

The decision to affirm the ratings is underpinned by Moody’s assessment that Kuwait’s balance sheet and fiscal buffers will remain strong for the foreseeable future, which preserve macroeconomic and external stability and anchor the credit profile. Balanced against this key credit strength is the persistently challenging political environment that limits the prospects for reforms that would reduce the vulnerability of the economy and government finances to long-term carbon transition risks.

The stable outlook reflects balanced risks to the ratings. Effective implementation of measures to reduce the government’s exposure to oil revenue and diversify the economy, which Moody’s does not currently factor into its baseline assumptions for at least the next two years, may raise the resilience of Kuwait’s credit profile to oil price fluctuations. By contrast, accelerating global momentum towards carbon transition that lowers the demand for and price of oil, in the absence of reforms including the passage of legislation to expand the government’s financing options, may reintroduce liquidity risks and weigh on the credit profile longer term. Kuwait’s local and foreign currency country ceilings remain unchanged at Aa2.

The narrower-than-average two-notch gap between the local currency ceiling and the sovereign rating reflects the country’s stable balance of payments through episodes of oil price volatility, against the economy’s exposure to a key revenue source and a challenging domestic political environment that constrains reform and diversification prospects. The zero-notch gap between the foreign currency ceiling and local currency ceiling reflects very low transfer and convertibility risks, given the country’s very large net external creditor position that includes ample foreign exchange reserves held by the central bank.