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Ratings remain stable, growth to rebound
August 26, 2017, 3:00 pm

Despite the tight fiscal situation and a halving of current account surpluses at the start of 2017, global rating agency, S&P, has affirmed Kuwait's stable credit ratings. In rating Kuwait with a stable 'AA/A-1+' long- and short-term foreign and local currency sovereign credit rating, S&P said that it anticipates the country’s large government and external net asset positions to continue affording the authorities space to gradually consolidate government finances without weighing on growth.

In its latest assessment of the country, in early August, S&P said: “The stable outlook reflects our expectation that Kuwait's public and external balance sheets —backed by sizeable financial assets — will remain strong over the forecast horizon, offsetting risks related to lower oil prices, Kuwait's undiversified oil economy, its relatively nascent parliamentary system, and regional geopolitical tensions.”

However, the rating agency warned that it would lower the ratings if policy response to low oil prices failed to lift growth over the forecast period amid weaker fiscal and external finances; or if domestic or regional risks from political instability and geopolitics were to escalate. The cautions came on the back of the concentrated nature of Kuwait's economy, where hydrocarbon products continue to account for about 60 percent of GDP, more than 94 percent of export revenue and about 90 percent of the government's fiscal receipts.

Despite the subdued oil price environment, the main element supporting Kuwait's stable rating was the country’s high levels of accumulated fiscal, external and household wealth. The agency said that it would raise the ratings for the forecast period, if political reforms enhanced institutional effectiveness and improved long-term economic diversification in the country; or if prospects for the oil sector improved significantly — all of which were unlikely scenarios given the present circumstances said the agency.

The sharp fall in oil prices from mid-2014 and its current level at around $50 per barrel has caused a significant weakening in Kuwait's income levels, as well as in its fiscal and external metrics. Nevertheless, the presence of large external financial buffers created from past oil windfalls has given Kuwaiti policymakers the space to counter slowing growth by increased spending, particularly on infrastructure projects.

As a result, the economy has remained relatively resilient with growth in the non-oil sector offsetting the contraction in the oil sector. The agency noted that over the 2017-2020 period it expected the economy to grow by around three percent on average, supported in large part by public spending on infrastructure projects.

The optimistic view of S&P was shared by the World Bank (WB,) which expects growth to increase from the 2 percent in 2016 to firm around 2.6 percent by 2018. During a recent media interview, the WB Country Manager Firas Raad noted that despite revenue strains, Kuwait’s GDP was expected to grow close to 3 percent in the coming two years.

Kuwait's economic growth rate which slowed in 2015-2016 is likely to range between two and three percent in the next few years mainly due to two reasons: First, the continued government spending on mega projects despite the shortfall in oil income and measures adopted by the Ministry of Finance to cut expenditure, reduce subsidies and increase utility rates. The second reason for optimism is the continued growth of the non-oil sector and the uptick in oil prices following OPEC’s decision to cut production, explained Mr. Raad.

Although the fiscal flow position has deteriorated in recent years, continued government support to non-oil sector and encouragement for public-private partnership projects through a slew of recent reforms has bolstered the country’s growth prospects, said the WB representative.

Kuwait Business Center (KBC), which launched in September 2016, epitomizes the government’s determination to improve the business environment and encourage investment in the country. The center functions as a one-window outlet that removes bureaucratic bottlenecks and streamlines the processes involved in licensing and setting up businesses, Mr. Raad added.

A joint initiative by the parliamentary committee in charge of improving the business environment, the Ministry of Commerce and Industry, and the Kuwait Direct Investment Promotion Authority (KDIPA), the KBC is aimed at enhancing the business and investment environment. 

The KBC has implemented several administrative, technical and legal reforms designed to promote Kuwait as an attractive investment destination and to help save time, money and effort for local and international investors. The center, along with other competent agencies, is currently working on preparing and issuing investor guidelines on promising projects within the framework of the public-private partnership.

The improvement of business atmosphere is closely related to economic growth and is consistent with His Highness the Amir Sheikh Sabah Al Ahmad Al Jaber Al Sabah’s vision of transforming Kuwait into an economic, financial and cultural hub in the region. The Amiri vision drives the government’s New Kuwait 2035 plan, which aims to diversify the economy and reduce its dependence on hydrocarbon revenues. In addition, these efforts will help create more jobs for the citizens, increase the per capita income and encourage innovation and creativity, he added.


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