Kuwait’s sovereign rating reaffirmed at ‘A+’ by S&P

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KUWAIT CITY, June 18: The recent report by Standard & Poor’s reaffirming Kuwait’s sovereign rating at A+ with a stable outlook highlights several critical points about the country’s economic situation, reports Al-Jarida daily. The report, consistent with previous assessments by Moody’s and the International Monetary Fund (IMF), underscores Kuwait’s heavy reliance on oil as its primary economic driver. This dependency exposes Kuwait to fluctuations in global oil markets, impacting its economic performance significantly.

The key points from the report include Economic Dependency on Oil — Oil exports account for 90% of Kuwait’s export earnings, 90% of general budget revenues, and about 50% of GDP. This high dependence makes Kuwait more vulnerable to fluctuations in oil prices and production levels dictated by OPEC+ agreements.

Economic Contraction — The Kuwaiti economy contracted by approximately 1.8% in 2023, with expectations of a further 2.3% contraction in 2024. This downturn is primarily attributed to declines in oil production and prices under OPEC+ agreements.

Financial Reserves — Kuwait’s financial reserves, estimated by Standard & Poor’s at around 418% of GDP (or approximately $715 billion), highlight significant financial buffers. However, there are discrepancies in estimates, with the Sovereign Fund Institute suggesting a higher figure of $923 billion. This variance may stem from different calculations concerning liabilities associated with these reserves.
Banking Sector Stability — The report acknowledges the solvency and effectiveness of Kuwait’s local banking sector, emphasizing the robust supervision by the Central Bank of Kuwait. Challenges and Future

Outlook — Despite the substantial financial reserves, Kuwait faces challenges due to its entrenched reliance on oil. Future economic growth projections (2.4% for 2025-2027) are contingent on Kuwait gradually restoring its oil production share within the OPEC+ framework. However, these projections do not indicate reforms but rather rely on geopolitical and market factors.

Reform Challenges — The report criticizes Kuwait for its limited efforts in financial and economic reforms, noting that current policies exacerbate structural economic gaps. There is concern that delaying reforms could make future adjustments increasingly difficult. Overall, the report echoes longstanding advice from international bodies and local experts urging Kuwait to diversify its economy away from oil dependence. Without substantive reforms, Kuwait risks prolonged economic vulnerability despite its substantial financial reserves.

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