KUWAIT: Kuwait’s sovereign ratings maintained its ‘stable’ outlook in an analysis by Capital Intelligence, a global ratings agency, which noted the country’s “strong macroeconomic fundamentals and large net external creditor position” in a note released to investors yesterday. The CI analysis takes into account the steep decline in oil prices but also notes that the central government budget – which includes estimated investment income – is expected to register a small surplus of 1.3 percent of GDP in the 2016 fiscal year, compared to a surplus of 26.3 percent in 2015.
Fuelled by renewed capital spending and the resumption of infrastructure projects, the Kuwaiti economy is expected to expand by 1.2 percent in the current fiscal year which ends in March and by 2.5 percent and 2.7 percent in 2017 and 2018, respectively. The intermediate-term fiscal outlook shows increasing downside risk in view of the ongoing period of low oil prices. However, Capital Intelligence reports that it is expecting the budget to remain in surplus in 2017 and 2018, benefiting in part from renewed efforts to contain current expenditure, prioritize capital expenditure and diversify revenue sources.
With large financial buffers and substantial room for borrowing, the government is well positioned to weather a sustained period of decline in oil prices. Central government debt remains very low at about 9.9 percent of GDP in 2016 and is issued for monetary policy purposes rather than to finance government spending. Government financial assets are substantial and include the investments of the two state oil funds. The actual level of government assets is uncertain as public disclosure of reserve fund assets is prohibited by law, but is reported to be between 150 percent and 250 percent of GDP.
Reflecting low hydrocarbon prices, Kuwait’s current account surplus is expected to fall below 10 percent of GDP this year and over the intermediate term. Gross external debt, which is mostly owed by the private sector, is reasonably low at around 19 percent of GDP, and is entirely dwarfed by the government’s external assets.