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Fitch Revises the Outlook on Kuwait to Negative from Stable
February 4, 2021
Fitch ratings has revised its outlook on the State of Kuwait to negative from stable while affirming its rating at AA. The lower outlook is based on the short term liquidity risk associated with reducing assets in the Arab state’s state treasury fund (GRF) due to political and institutional gridlock in the absence of parliamentary authorization for the government to borrow. The political divisions in the sovereign have led to delays in passing of the debt law, deficit reduction and fiscal reforms, which would adversely affect the liquidity of the fund and thus impact the government’s ability to meet its obligations. While Fitch believes that the government is capable of replenishing the GRF, it also takes into consideration the associated uncertainty in the timing of a sustainable funding. The fiscal deficit of the nation is likely to remain in double digits in the medium to long term and is expected to widen to 20% of the GDP at ~KWD 6.7bn ($22.1bn) in FY20 and to 21% of GDP at KWD 7.5bn ($24.8bn) in FY21 based on the assumption that oil prices average $45/bbl. The rich gulf state has taken a double hit due to the pandemic and low oil with revenues likely to fall 33% to ~KWD 14bn ($46.2bn) and spends at ~62% of GDP at KWD 21bn ($69.4bn). Kuwait’s 3.5% 2027s were down 0.08 at 113.13.
This comes a few days after Moody’s had downgraded Kuwait Projects Co (KIPCO), the country’s largest listed investment company into junk territory to Ba1 from Baa3 due to the cash burn suffered by the company due to lower oil prices.
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