Fitch affirms Kuwait at AA with stable outlook

Fitch Ratings today affirmed Kuwait’s long-term foreign and local currency issuer default ratings (IDR) at AA with a stable outlook.

“Kuwait’s exceptionally strong sovereign balance sheet is the key support for the ratings,” Fitch said in a statement. “Very high per capita oil exports have consistently generated large fiscal and current account surpluses.”

“Fitch estimates that sovereign net foreign assets rose to 200 per cent of GDP at end-2013, the strongest of all rated sovereigns, and the net creditor position rose to 44 per cent of GDP,” Fitch said. “Both are expected to improve over the forecast period.”

Other features of the Kuwaiti economy cited by Fitch include:

  • a current account surplus of 33.1 per cent of GDP in 2014
  • a general government surplus estimated at 26.1 per cent of GDP in the fiscal year ending March 2014.

Fitch said it expects the current account surplus to decline due to lower oil prices but that a 22 per cent surplus is expected in 2016. The budget surplus is forecast to fall to 19.2 per cent of GDP in 2016.

“There are tentative signs that the economy is gaining momentum under a more pro-government parliament, reflected in the award of several projects in recent months and a rise in the pace of lending to the private sector,” Fitch said. Real GDP growth is forecast to average 2.6 per cent between 2014 and 2016.

“Structural indicators are generally weaker than rating peers,” Fitch said. “Human Development, Doing Business and World Bank governance indicators are well below the AA median, but GDP per capita is substantially above the median.”

“The economic policy framework is a weakness, reflecting a weak fiscal framework and limited flexibility of monetary policy,” Fitch said. “Steps have been made to strengthen the macro-prudential framework for the banking sector, and to develop capital market regulations.

Fitch forecasts Brent crude oil will average $105 a barrel in 2014, $100 a barrel in 2015 and $95 a barrel in 2016.