Fitch Maintains Kuwait’s ‘AA-‘ Rating with Stable Outlook

Key factors influencing Kuwait’s credit rating:

Foundational strengths and challenges: Kuwait’s ‘AA-‘ credit rating draws strength from its robust fiscal and external balance sheets, which are among the strongest across Fitch-rated nations.

This favorable standing, however, faces limitations due to the country’s heavy reliance on oil revenues, an extensive welfare system, and a large public sector, which pose sustainability concerns in the long term.

Additionally, the political landscape in Kuwait complicates efforts to address enduring fiscal and economic challenges, including the passage of key legislation to permit debt issuance and define government financing strategies.

Exceptional financial reserves: Kuwait boasts impressive fiscal and external balance sheets, with its sovereign net foreign asset position predicted to average 529% of GDP in 2024-25. This figure significantly surpasses that of other Fitch-rated sovereigns and stands more than ten times the median for ‘AA’ rated countries.

A substantial portion of these assets is managed by the Kuwait Investment Authority (KIA) through the Future Generations Fund, alongside the assets of the General Reserve Fund (GRF), the government’s main treasury account.

Persistent political challenges

The dynamic between Kuwait’s elected parliament and its appointed cabinet frequently results in ministerial resignations and the dissolution of parliament. The most recent dissolution in February anticipates elections on April 4th.

Predictions suggest a parliament composition similar to prior elections, with a majority critical of government policies. This ongoing political division is expected to continue hindering policymaking in Kuwait.

Government reforms in question

Despite the introduction of a technocratic cabinet by the new Emir, Sheikh Meshal Al-Ahmed Al-Jaber Al-Sabah, and a four-year government program aiming at fiscal improvements, skepticism remains regarding the implementation of these plans. These include enhancing non-oil revenue, restructuring subsidies, and encouraging private sector participation, which echo the ambitions of previous administrations that faced parliamentary gridlock.

Economic Projections and Concerns

With assumptions of passing a liquidity law in the fiscal year ending March 2026, Kuwait’s government debt to GDP ratio is expected to increase, though remaining significantly lower than the ‘AA’ median forecast for 2025. Despite this projected increase, Kuwait’s debt levels are anticipated to stay manageable, underpinned by its substantial financial reserves.

Kuwait’s economic forecasts are particularly sensitive to fluctuations in oil prices and production levels. The country’s budget outcomes could dramatically shift with changes in these factors. Moreover, Kuwait’s governance, influenced by its political stability and regulatory quality, plays a crucial role in its ESG (Environmental, Social, and Governance) scoring, highlighting the importance of governance in its overall rating.

Rating outlook and sensitivities

Fitch’s analysis outlines both negative and positive rating sensitivities. Factors that could lead to a downgrade include sustained fiscal pressures and significant deterioration in fiscal and external positions.

Conversely, evidence of effective long-term fiscal management and transparent government funding strategies could result in a positive rating action. The final rating reflects adjustments for structural and public finance challenges, underscoring the complexity of Kuwait’s economic and political landscape.