KUWAIT CITY, March 31, (KUNA): Moody’s credit rating maintained Kuwait sovereign rating at (Aa2) but said it would assess country’s ability to change way it was addressing budgets deficit amidst failure to issue a new public debt law, thus continuation of withdrawal from General Reserve Fund (GRF).
Moody’s, in a statement on its website, said it would also evaluate Kuwait government’s attempts this year to prevent expansion of deficit to be 30 percent of Gross Domestic Product (DGP). It said fiscal strength would be weaker than current rating if lack of new financing resources continued to exist. Moody’s said credit strength was supported by huge assets of Future Generations Fund (FGF), which make up almost all assets of GRF.
“Some of these assets can be used, when necessary, to meet financing needs of the state budget,” it said. It kept Kuwait’s short and long terms foreign-currency bond and deposit ceilings at Aa2. Moody’s said it was monitoring oil prices amidst a drop in international demand due to the spread of coronavirus coupled with increase rise in supply.
This is added to failure of talks of OPEC+ to extend an agreement to cut output. Moody’s lowered oil prices projections for 2020 and 2021 to be $43-$53 per barrel. The low oil prices, it added, would have a great impact on the fiscal conditions in the State of Kuwait, where 90 percent of revenues are from oil proceeds.
The oil prices projections, said Moody’s, would decrease revenues by 34 percent of the 2020-21 budget, thus generating a deficit of 13 percent of GDP. It projected the 2020-21 fiscal budget to be around $39 billion, and said the government needed to spend KD 31.6 billion ($103 billion) in the next three years.
Kuwait’s credit strength is supported by drawdowns of FGF but this could be undermined by risking depletion of liquid portion of the fund if the country fails to issue a new debts law. An agreement between the government and Parliament to address financial uncertainties will guarantee maintenance of the current credit rating, it said.
In a related development, the Executive Board of the International Monetary Fund (IMF) concluded Article IV consultation with Kuwait and considered and supported the staff appraisal without a meeting. According to the consultation, nonoil growth strengthened to estimated three percent in 2019, propelled by government and consumer spending. With oil output contracting by one percent, broadly in line with the OPEC+ agreement, overall growth slowed to estimated 0.7 percent in 2019 from 1.2 percent in 2018. Fiscal and current account surpluses narrowed on account of lower oil prices and output.