S&P Global Ratings maintained the credit ratings for Kuwait as its deep pockets will help it weather a three-year lull in oil prices and cope with its undiversified economy.
The ratings agency affirmed the country’s AA/A-1+ long- and short-term foreign and local currency sovereign credit ratings, with a stable outlook. “We anticipate Kuwait's large government and external net asset positions will continue to afford the authorities space to gradually consolidate government finances without weighing on growth,” S&P said.
Oil prices have been depressed since mid-2014, dropping from highs of US$115 a barrel to hovering around $50 a barrel. And Kuwait relies on its hydrocarbon sector with oil and gas accounting for about 60 per cent of its GDP and 95 per cent of export revenues, according to Opec.
The decline in oil prices has hampered a portion of Kuwait's income levels, measured by GDP per capita, similar to other Gulf countries.
The credit ratings indicates S&P’s position that the country will be able to withstand the oil price volatility with strong finances. “We expect these strengths to offset risks related to the current low oil price, Kuwait's undiversified oil economy, and what we assess as its relatively nascent parliamentary system, in addition to geopolitical tensions in the region,” the agency said.
The assets from past oil windfalls has cushioned Kuwaiti policymakers, giving breathing room to counter slowing growth by increased spending particularly on infrastructure projects. Kuwait’s assets managed by the sovereign wealth fund Kuwait Investment Authority is estimated to be five times of this year’s GDP, S&P said. This has helped the government in its plans to invest $115 billion in the oil sector over the next five years, which will boost its production next year.
While Kuwait will likely comply with the Opec production cap to 2.7 million barrels per day (bpd), S&P expects Kuwait to ramp up oil output to over 3 million bpd by 2020. And this could increase further if an ongoing oil production dispute in the shared neutral zone with Saudi Arabia is fully resolved.
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However, the country's credit ratings could fall should there be a further deterioration on geopolitical risks or if the government's policy response to low oil prices fails to lift growth over the forecast horizon.
S&P assumes the price of Brent crude, the international benchmark, will average $50 per barrel through the end of next year, creeping up to $55 per barrel in 2019.