Fitch affirms Kuwait's rating at AA-, outlook stable

09/03/2025 04:20 AST

Fitch Ratings has reaffirmed Kuwait's Long-Term Foreign-Currency Issuer Default Rating at AA-, with a stable outlook due to the country's strong fiscal position and external financial consistency.

The US-based agency said Kuwait's external balance sheet remains the strongest of all Fitch-rated sovereigns, with the nation's net foreign assets projected to rise to 601 percent of the gross domestic product this year from an estimated 582 percent in 2024.

According to Fitch, an AA- ranking indicates expectations of very low credit risk and a strong capacity for payment of financial commitments.

Kuwait's strong rating aligns with the broader trend in the Middle East region, where countries steadily diversify their economies by reducing their dependence on crude revenues.

In February, Fitch Ratings affirmed Saudi Arabia's IDR at A+ with a stable outlook, while the UAE was rated AA-.

The Kingdom's A+ ranking indicates Saudi Arabia's strong capacity to pay financial commitments while signifying low default risk.

"The recently-appointed government has initiated reforms aimed at reducing reliance on oil revenue, improving government efficiency, and rationalizing spending, capping it at 24.5 billion dinars ($79.53 billion), accounting for about 51 percent of GDP," said Fitch Ratings.

The report further said that the Kuwaiti government's introduction of a 15 percent domestic minimum top-up tax on multinational companies came into effect on Jan. 1. It is expected to generate about 0.5 percent of GDP, amounting to 250 million dinars annually, with collections expected to commence by 2027.

The government is also planning to introduce the long-delayed excise tax in the fiscal year ending March 2026.

"Fitch views the pick-up in reform efforts as positive. However, a significant overhaul of generous public wages and welfare spending (79 percent of total expenditure; 40 percent of GDP) is unlikely in the short term, given the state's deep-rooted generosity toward Kuwaiti citizens and still favorable oil prices," the analysis added.

The Kuwaiti government is also planning to pass a liquidity/debt law, which will enable the country to raise new debt.

The agency said even without a liquidity law, the government would still be able to meet its financing obligations in the coming years, given the substantial assets at its disposal.

Kuwait's overall revenue is expected to decline in the financial year 2025 due to oil revenue loss from lower crude prices as OPEC+ continues production cuts to maintain market stability, according to Fitch.

The country's non-oil revenues are expected to grow modestly in the financial year but fall short of the government's target of 2.9 billion dinars.

The study further said that the Kuwait government's debt to GDP rose to 6 percent in FY25 and 9.2 percent in FY26, despite a $4.5 billion Eurobond maturing in March 2027.

The report also outlined some constraints that affected Kuwait's rating, including the country's weaker governance than peers, heavy dependence on oil, and its generous welfare system and large public sector, which could result in long-term fiscal pressure.

"Prospects remain unclear for meaningful fiscal adjustment to address long-term challenges and legislation to allow debt issuance and improve fiscal financing flexibility, although there are emerging signs of progress," said Fitch.

Arab News