Standard & Poor’s sovereign rating of Kuwait (A+) with a forward-looking…

Standard & Poor’s sovereign rating of Kuwait (A+) with a forward-looking…
Standard & Poor’s sovereign rating of Kuwait (A+) with a forward-looking…
(MENAFN– Al-Anbaa) The US agency (Standard & Poor’s) announced that Kuwait’s sovereign credit rating will remain at (A+) with a negative outlook. It is expected that real GDP will grow by 8 percent this year, driven by the increase in oil production under the (OPEC +) agreement.

In its report on Kuwait’s sovereign rating issued today, Friday, on its website, the agency expected that the average budget deficit in Kuwait would reach 12 percent of GDP until 2025, despite the rise in oil prices and quantities, which is among the highest rates among all classified countries. by the agency.

And she stated, “The government is about to exhaust the liquidity of the General Reserve Fund and has not yet reached an agreement with the National Assembly on a comprehensive strategy for financing the budget deficit, which represents financing risks for the state, especially if oil prices drop.”
She indicated that relations between the executive and legislative authorities began to improve after the national dialogue, which increases the possibility of passing the public debt law and the public financial control plan, noting that the negative view of the classification reflects the risks over the next 12-24 months related to the government’s ability to overcome obstacles. Institutionalization that prevents it from implementing a strategy to finance the budget deficit in the future.
And she saw the possibility of downgrading Kuwait’s credit rating if the high budget deficit persists in the medium term with the absence of comprehensive, sustainable and agreed financing arrangements. Public debt or authorizing other sources of deficit financing.
It indicated the possibility of changing the rating outlook to stable if the government succeeds in addressing the current restrictions on financing the public budget by approving the Public Debt Law and authorizing the government to benefit from the Future Generations Reserve Fund and the Public Financial Control Program.

She pointed out that Kuwait is currently benefiting from the rise in oil prices from its lowest levels since the beginning of the pandemic in 2020, expecting that Kuwait will nevertheless face a public budget deficit averaging 12 percent of GDP in the medium term, and the equilibrium price of the public budget is estimated between 85 and $90 a barrel.
Regarding the positive developments after the national dialogue, the agency said that these conciliatory moves increase the likelihood that the government and parliament will reach an agreement on major structural reforms, noting that a comprehensive strategy for budget financing has not yet been developed, while the General Reserve Fund has been exhausted, and “this situation poses negative financing risks to the rating.” credit to the state, especially if oil prices drop.

It estimated the total general government debt of Kuwait at 8 percent of GDP, while interest expenditures amount to about 1 percent of total public spending, indicating that any possible adjustment to uncontrolled public spending could weaken the economy and weaken the confidence of foreign investors.

She noted that Kuwait is the only Gulf country that has not yet implemented a value-added tax at a time when reducing public spending is politically difficult, given that most of it represents government wages and subsidies.

She stated that Kuwait’s economy is largely dependent on oil, as it accounts for about 90 percent of government exports and revenues, and the oil sector constitutes 50 percent of the gross domestic product, expecting that economic performance will strengthen over the next two years after the difficult pandemic period.
It also expected that the gross domestic product of Kuwait would reach slightly less than about $140 billion in 2024, which is an almost constant level compared to the levels of 2018, indicating that the total assets of the sovereign wealth fund exceed 460 percent of the GDP, and the general government net assets are estimated at about 450 percent. of GDP, the highest among all sovereign bodies.

And it considered that the general budget deficit is the highest in the world with the absence of a comprehensive financing strategy. It is expected that the Kuwaiti dinar will remain linked to a basket of currencies dominated by the US dollar, which is a system that served Kuwait in a way that “however restricts its ability to manage an independent monetary policy to help mitigate fluctuations in the economic cycle.” In addition, the local currency debt market is less developed compared to its peers.

The agency considered that the measures taken by Kuwait during the past two years to address the financial situation are much less than what is required to bridge the financing gap, including measures related to annual financial transfers to the Future Generations Reserve Fund and injecting additional liquidity to the General Reserve Fund by transferring some less liquid assets to generations’.

She said that the classification reflects the strong conditions of government assets and the balance of payments. It is expected that the net external credit position of Kuwait will have reached 480 percent of GDP at the end of last year, and that the current account of the balance of payments will record a surplus of about 17 percent of GDP, supported by prices and production quantities. Oil and foreign investment income managed by the General Investment Authority.

She stressed that the Kuwaiti banking sector entered the phase of economic downturn in a relatively strong position, as the Central Bank of Kuwait immediately moved to implement many support measures for the economy and the financial system.

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