Moody’s Investor service yesterday changed the rating outlook on Kuwait from “negative” to “stable”. Concurrently, the long term-issuer rating has been affirmed at Aa2. According to its Global Credit Research, Moody’s decision to change the outlook to stable from negative reflects its views that there are sufficient signs of Kuwait’s governments institutional capacity to effectively implement its fiscal and economic reform program to preserve creditworthiness in the medium-term, which has the stated objective of diversifying and enhancing the economic base and its budgetary revenues.
Positive fiscal reform steps undertaken by the Kuwaiti government so far include the establishment of a debt management unit at the Ministry of Finance (MoF) and improved coordination between key institutions such as Kuwait Investment Authority (KIA), MoF, and Central Bank of Kuwait (CBK).
Going forward, Moody’s expects Kuwait’s government debt to rise to about 34% of GDP by 2020, as the government will increasingly use debt issuance as a source of funding its expenditures. At these levels, Kuwait’s government debt ratio would remain below the Aa rated median and Kuwait’s government debt affordability indicators would remain significantly stronger than those of most Aa rated peers. For instance, government debt as a share of revenues would be around half, and interest payments as a share of government revenues would be around a third of the government rated median.