Moody’s Investors Services has recently highlighted Kuwait’s robust credit position, which is primarily supported by its substantial financial reserves and significant oil and gas reserves with low production costs. However, the agency also warns that Kuwait’s heavy reliance on oil exposes it to certain risks, as reported by Al-Rai Daily.
Moody’s acknowledges that Kuwait faces long-term challenges in transitioning away from carbon-based industries, especially considering the complex political dynamics. The agency notes that the stable outlook assigned to Kuwait’s credit rating reflects a balanced risk assessment. Moody’s suggests that effective implementation of measures to reduce the government’s dependence on oil revenues and diversify the economy could enhance credit flexibility. However, it is important to note that the current assumptions do not account for such measures for at least the next two years.
On the other hand, Moody’s cautions that the global shift towards cleaner energy sources will gradually reduce the demand for oil and suppress its prices. This long-term trend could potentially impact Kuwait’s credit position, particularly if comprehensive financial and economic reforms are not pursued. Moody’s indicates that Kuwait’s credit rating may be raised if there is a significant improvement in prospects for financial and economic diversification away from oil.
Additionally, a more positive relationship between the government and the National Assembly, enhancing policy effectiveness, could also contribute to a higher rating. Conversely, the credit rating could be lowered if the government’s financial strength significantly weakens in the medium term. This scenario may arise from the inability to implement reforms, resulting in a widespread financial deficit coupled with declining oil prices and depleted sovereign wealth reserves.
Moody’s underscores the importance of approving the public debt law, which could mitigate risks of government liquidity issues. Failure to address these concerns, especially if the General Reserve Fund assets are significantly depleted due to sustained fiscal deficits, could result in a credit rating downgrade.
In terms of Kuwait’s economic strength, Moody’s rates it at “A2,” primarily due to its abundant oil wealth and low production costs. However, the agency acknowledges that the accelerating global shift towards carbon-neutral economies could exert negative pressure on Kuwait’s economy and government finances. Nevertheless, it is worth mentioning that Kuwait boasts the largest ratio of proven oil reserves to production in the Gulf region, which could last for approximately 90 years at the current production rate.
Moody’s rates Kuwait’s institutional strength and governance as “ba1,” reflecting weaknesses in certain aspects of its institutional framework and effectiveness. While Kuwait has successfully built large financial reserves during periods of high oil prices, its progress in financial and economic reforms lags behind peers due to strained relations between the government and the National Assembly.
In conclusion, Moody’s assessment of Kuwait’s credit position highlights the country’s robust financial reserves and significant oil and gas reserves. However, the agency also emphasizes the risks associated with Kuwait’s heavy reliance on oil and the challenges it faces in transitioning to a more diversified economy. The global shift towards cleaner energy sources poses a long-term threat to Kuwait’s credit position, and comprehensive financial and economic reforms are necessary to mitigate these risks. Improving the relationship between the government and the National Assembly and addressing concerns related to government liquidity are also crucial for maintaining a stable credit rating. Kuwait’s abundant oil wealth provides a strong foundation, but it is essential for the country to adapt to the changing global landscape and pursue sustainable economic development.
Source: TimesKuwait
