S&P affirms Kuwait ratings, expects annual GDP growth of 3% to 2020

Ratings agency S&P has affirmed Kuwait’s credit ratings as stable at AA/A-1+ in the expectation the country will be able to maintain a GDP growth rate of 3 per cent from 2017 to 2020.

In a report, the agency said Kuwait continued to be support by “high levels of accumulated fiscal, external, and household wealth” within the current lower oil price environment.

This was dispute the country deriving about 60 per cent of GDP, more than 90 per cent of exports and 90 per cent of fiscal receipts from hydrocarbon products.

S&P said the sharp fall in the oil price since 2014 had led to a significant deterioration in Kuwait’s income levels measured in GDP per capita terms, as well as fiscal and external metrics.

However, large fiscal and external assets from higher oil prices in the past had afforded the country the space to counter slowing growth by increased spending on infrastructure projects and other areas.

It also noted the completion of the first public-private partnership projects since the PPP law came into force in 2015 with others to follow in power, infrastructure and housing that should help to maintain economic growth.

In addition, the country is expected to see a boost to growth as increased capacity from investments in gathering centres and upgrades to existing oilfields come online bringing the country’s oil output to more than 3 million barrels per day in 2022 from 2.7 million barrels per day this year, according to S&P.

“We estimate that real GDP grew by 3 per cent in 2016 supported by public investment growth. Over 2017-2020, we expect the economy to grow at a similar pace on average supported by public spending on infrastructure projects,” S&P said.

The agency added that Kuwait was unlikely to see a negative spillover from a rift between Qatar and Saudi Arabia, the UAE, Bahrain and Egypt for which it has been acting as a mediator.

Read: US, UK, Kuwait urge swift negotiated solution to Qatar crisis

The country is expected to engage in gradual fiscal consolidation through to 2020 and will meet its financing needs via debt issuance and asset drawdowns until 2018, S&P added.

The firm estimated Kuwait’s government deficit widened to 17.66 per cent of GDP in 2016/2017 from 17.32 per cent in 2015/2016.

This is expected to narrow to 7 per cent of GDP by 2020/2021 based on its Brent crude average price forecast of $50 a barrel in 2017 and 2018 and $55 a barrel in 2019 and beyond.

However, it said the deficit could decline faster if the government introduces a flat corporate tax and a value-added tax, both of which are not anticipated before 2019 at the earliest.

Kuwait has also reduced subsidies on fuel, electricity, water and recently increased healthcare costs for foreigners to cut spending but is expected to face opposition on pay freezes and the repricing of services in the public sector.

Read: Kuwait to introduce higher healthcare fees for foreigners

The agency said it could lower the rating if the policy response to low oil prices failed to lift growth, domestic political stability deteriorated or geopolitical risks significantly escalated.