Fitch Solutions, affiliated with the global credit rating agency, Fitch, said that since Kuwait began taking strict measures against perceived corruption and issuing a new debt law to finance the fiscal deficit, revenues will remain high on the government’s agenda in the coming months, Al Rai daily reported.
The Kuwaiti economy in 2020 was impacted by a paralysis due to the threat of the Coronavirus pandemic, and “OPEC +” restrictions on supplies that entered into effect since May 1, 2020 and are expected to continue until April 2022.
Fitch Solutions expects that the Kuwaiti economy will achieve a moderate recovery in 2021, with growth rate reaching 3.2 percent, compared to a contraction of 5.5 percent, according to its estimates for 2020.
To some extent, private consumption and fixed investment would benefit from faster vaccine distribution, increased government spending and accommodative monetary policy.
Nevertheless, net exports will continue to put pressure on growth, given the continued supply constraints imposed by OPEC +. It expects a rise in revenues in the next fiscal year on the back of the significant increase in energy prices, which constitute 89 percent of total fiscal revenues, while the government believes that it will increase major spending in the coming quarters.
Fitch expects the budget deficit to decline from 22 percent of GDP in the fiscal year 2020/2021 to 13.6 percent in 2021/2022, noting that the strength of Kuwait’s external position will increase thanks to what current account surpluses in 2020 and 2021 add to its foreign exchange reserves despite lower oil prices in the first half of 2020.
According to Fitch Ratings, there is limited risk to the external position of Kuwait thanks to the huge foreign exchange reserves in the form of the sovereign wealth fund.
