Kuwait credit rating cut for second time in two years by S&P

Kuwait was downgraded by S&P Global Ratings for a second time in less than two years after a fall in oil revenue and increased spending pressured the Persian Gulf nation’s fiscal outlook.

The sovereign credit rating was cut one level to A+ from AA-, the fifth-highest investment-grade level, according to a statement Friday. S&P now rates Kuwait two notches lower than Fitch Ratings and on par with Moody’s Investors Service, which lowered its own assessment of the country last year for the first time. S&P’s outlook for Kuwait is negative.

“The downgrade reflects the persistent lack of a comprehensive funding strategy despite the central government’s ongoing sizable deficits,” according to S&P analysts. “We consider that these persistent delays could ultimately leave Kuwait more vulnerable to potential future terms-of-trade shocks.”

The rating agency downgraded the sovereign in March 2020, citing materially lower oil prices. Although crude rebounded this year to more than $70 per barrel, a delay to proposed laws that would allow the government to borrow or withdraw from its $700bn Future Generations Fund has left the treasury cash-strapped amid increased spending during the pandemic and delayed reforms.

Kuwait’s economy will grow by only 0.5 per cent in real terms in 2021, following a 8.9 per cent contraction last year on oil production cuts and pandemic effects, according to S&P. It expects Kuwait’s central government deficits will average 17 per cent of GDP over 2021-2024.

Kuwait’s government has been unable to borrow since its debut Eurobond in 2017, forcing it to rely on its General Reserve Fund instead. Liquid assets there are close to being depleted, forcing the Finance Ministry to push through other measures to meet spending needs.