Leading global credit rating provider Moody's Investors Service maintained Aa2 sovereign ratings for Kuwait with a stable outlook as a result of very high levels of economic and fiscal strength support.
The Credit Analysis elaborates on Kuwait's credit profile in terms of Economic Strength, Institutional Strength, Fiscal Strength and Susceptibility to Event Risk, which are the four main analytic factors in Moody's Sovereign Bond Rating Methodology.
In terms of Economic Strength, the research indicated Kuwait's economy as being characterized by its large concentration in the oil sector, a high GDP per capita and subdued capital spending.
The assessment of Kuwait's economic strength was Very High primarily on the country's wealth, including a high GDP per capita. Kuwait's economic strength relies heavily on the monetization of its very large oil and gas reserves, as the oil sector accounts for over half of Kuwait's GDP and 94% of total exports of goods and services in 2013.
Moody's estimates that the government's financial assets, mainly managed by the Kuwait Investment Authority, far exceed the country's GDP. In addition, government debt is very low and declining as a share of GDP.
The government has not incurred a fiscal deficit since 1995, and Moody's expects the government to register another substantial surplus this fiscal year of around 28% of GDP.
Over the medium-term, however, fiscal surpluses will gradually decline as the government continues to increase fiscal spending, while oil production levels only increase marginally. Moody's also expects oil prices to decline gradually over the medium-term horizon.
Moody's report further notes that Kuwait's institutional strength is reflected by weaknesses in government effectiveness, adding, however, that the inherent instability of Kuwait's institutional set-up does not pose a risk to overall political stability.
The research referred to Kuwait's susceptibility to regional geopolitical risks, which center on tensions between Iran and the West, along with the conflicts in Syria and Iraq, which in case of an escalation, it said, would negatively affect the region as a whole.
"These risks are counterbalanced by Kuwait's strong relations with the US, other G8 countries and its Gulf Cooperation Council neighbors," it was added.
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.
Downward rating pressures could emerge if the domestic or regional political environment worsens significantly, or if a prolonged period of very low oil prices leads to sustained deterioration of Kuwait's fiscal and external current accounts, resulting in a reduction in foreign assets, it was concluded.