"Fitch" affirms Kuwait's rating at "AA", modifying the outlook to "negative"

Fitch confirmed its sovereign credit rating of the State of Kuwait at AA with a change in the outlook from stable to negative.

According to the Central Bank of Kuwait statement issued today, Wednesday, Fitch clarified in its report that the reduction in the outlook reflects the short-term liquidity risks associated with the imminent exhaustion of the General Reserve Fund in the absence of Government permission to borrow.

This risk is rooted, according to the report, in the political and institutional stalemate, which also explains the absence of effective reforms to address the large fiscal deficit in the state's general budget, and the expected weak balance of balances Kuwait’s financial and foreign affairs, however these funds will remain among the strongest sovereign budgets that Fitch ranks.

The agency expects that failure to pass a new public debt law may lead to the General Reserve Fund's liquidity being depleted in the coming months, unless further measures are taken to remedy its situation.

Fitch pointed out that depleting the liquidity of the General Reserve Fund would significantly limit the government's ability to fulfill its obligations and that could lead to major economic disruption. p>

and according to the agency's basic scenario, which assumes that the government will replenish the resources of the General Reserve Fund to avoid depletion even without any new legislation by Parliament, and the government continues to serve the debt (where It is about 400 million dinars, or 1% of the GDP in 2021), but there is still a degree of uncertainty.

The agency also indicated that the authorities in Kuwait have demonstrated a commitment to avoid the liquidity crisis and have the flexibility to take exceptional measures to this end.

and Fitch indicated that all efforts to reduce the fiscal deficit, fiscal reform, and the passage of the public debt law still face entrenched political divisions and budget stagnation, as salaries and government subsidies constitute more than 70% of public spending, and Kuwaiti citizens make up about 80% of workers in the public sector.

Fitch expects that the public budget deficit (after adding government investment income) will widen to about 6.7 billion dinars, or 20% of GDP in fiscal year 2021 / 2020.