Credit rating agency Standard & Poor’s downgraded Kuwait for the second time in less than two years after lower oil revenues and increased spending pressured the Gulf state’s financial outlook.
The sovereign’s credit rating was downgraded by one level to A+ from AA-, the fifth-highest investment grade level, according to a statement released Friday.
Standard & Poor’s view of Kuwait is negative
Standard & Poor’s now rates Kuwait two notches below Fitch’s and on par with Moody’s Investors Service, which lowered its own assessment of the country last year for the first time. Standard & Poor’s view of Kuwait is negative.
According to Standard & Poor’s analysts, “the downgrade reflects the continuing lack of a comprehensive financing strategy despite the central government’s persistent large deficits.” “We consider that these continued delays may ultimately make Kuwait more vulnerable to potential shocks in terms of trade in the future.”
The rating agency downgraded the sovereign’s rating in March 2020, citing materially lower oil prices.
Although crude oil has rebounded this year to more than $70 a barrel, delays in proposed laws that would allow the government to borrow or withdraw from the $700 billion Future Generations Fund have left Treasury cash-strapped amid increased spending during The epidemic and delayed reforms.
Kuwait’s economy will grow by only 0.5% in real terms in 2021, after a contraction of 8.9% last year due to oil production cuts and pandemic effects, according to Standard & Poor’s.
It expects Kuwait’s central government deficit to average 17% of GDP during 2021-2024.
The Kuwaiti government has been unable to borrow since it was first introduced in 2017, forcing it to rely on the General Reserve Fund instead. Liquid assets there are on the verge of depletion, forcing the Ministry of Finance to take other measures to meet spending needs.
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