HomeFeatured BlogsOil Wealth Supports Kuwait But Challenges Ahead, Says Moody’s

Oil Wealth Supports Kuwait But Challenges Ahead, Says Moody’s

A worsening of the domestic political environment in Kuwait is a potential risk for the country, says Moody’s.
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A contentious relationship between Kuwait’s government and parliament has hindered development and diversification, while high dependence on volatile oil exports is causing the Arab Gulf state’s economic performance to fluctuate, according to a new Moody’s Investors Service report.

It still has a ‘Aa2′ sovereign rating and stable outlook for the country, a view supported by “very high levels of economic and fiscal strength”, Moody’s said.

Buoyed by hundreds of billions of dollars in petrodollar receipts, the country’s high GDP per capita is at a level similar to that of many advanced economies. And its huge oil and gas reserves, at the current rate of production, would last nearly another 90 years.

Kuwait’s financial assets–managed mainly by the Kuwait Investment Authority–are estimated to far exceed the country’s GDP, while government debt is very low and declining as a share of GDP, Moody’s noted. Not surprisingly, the government there has not posted a fiscal deficit since 1995. And Moody’s expects another substantial surplus this year.

But Kuwait faces several challenges going forward: be it weaker oil prices, regional unrest and/or a possible worsening of the domestic political environment.

Over the medium-term, Moody’s said surpluses will gradually decline as the government continues to increase fiscal spending, while oil production levels only increase marginally. Oil prices are also expected to decline gradually during this period.

Besides, the country has been slower than regional peers in developing its non-oil sector. And while the inherent instability of its institutional set-up does not pose a risk to overall political stability, the continued confrontation between the legislative and executive sides of government hampers policymaking, it added.

Kuwait is also susceptible to regional geopolitical risk – centering on the tension between Iran and the international community, which in case of an escalation would negatively affect the region as a whole, Moody’s noted.

It’s not all doom and gloom though. Moody’s goes on to say “an abatement of regional political tensions and a sustained improvement in the quality of Kuwait’s political, administrative, and legal institutions and in the transparency of the government’s balance sheet could exert upward pressure on Kuwait’s sovereign rating.”

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(via WSJ Blogs)

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