KUWAIT CITY, March 8:  Fitch Ratings has confirmed Kuwait’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'AA-' with a stable outlook, reflecting the country’s strong financial and external balance sheets despite ongoing challenges, such as its reliance on oil and a large public sector that could exert long-term fiscal pressure.

The Central Bank of Kuwait (CBK) highlighted in its statement that Kuwait’s external balance sheet remains the strongest among all Fitch-rated nations. Fitch forecasts Kuwait’s sovereign net foreign assets to increase to 601% of GDP in 2025, up from an estimated 582% of GDP in 2024. These assets are mainly managed by the Kuwait Investment Authority (KIA) and held in the Future Generations Fund and the General Reserve Fund (GRF), which is the government’s treasury account.

In terms of fiscal and economic reforms, the recently appointed government has initiated various measures to reduce the country’s dependence on oil revenues, improve government efficiency, and rationalize spending. Notably, the government introduced a 15% domestic minimum top-up tax (DMTT) on multinational companies, effective January 1, 2025. This tax is projected to generate about 0.5% of GDP annually, with collections expected to begin in 2027.

Additionally, the government aims to pass a liquidity and debt law to facilitate new borrowing, following the expiry of the previous debt law in 2017. However, the timeline for this law’s implementation remains uncertain. Despite this uncertainty, Fitch remains confident that Kuwait will meet its financing obligations in the coming years due to its substantial assets and reserves.

Fitch anticipates Kuwait’s budget position to deteriorate in the fiscal year ending March 2026 (FY25) due to a decrease in oil revenues, caused by lower oil prices and OPEC+'s delayed adjustments to oil production quotas. Non-oil revenues are expected to grow modestly in FY25, but they may still fall short of the government’s target of KWD 2.9 billion (6% of GDP).

Kuwait’s fiscal break-even oil price, including investment income, is estimated at USD 58 per barrel in FY25-FY26. Gross government debt/GDP remains low at 2.9% in FY24, but assuming the passage of the liquidity and debt law, Fitch forecasts government debt/GDP will rise to 6% in FY25 and 9.2% in FY26.

Despite regional geopolitical tensions, including ongoing conflicts in the Middle East and disruptions to Red Sea shipping, the impact on Kuwait has been minimal. Kuwait’s large government assets provide a buffer against such tensions, which could escalate in the future. However, the country’s heavy dependence on oil remains a risk, as oil prices significantly influence its budgetary outcomes.

Fitch also noted Kuwait’s strong governance standards, assigning an ESG (Environmental, Social, and Governance) Relevance Score (RS) of ‘5[+]’ for political stability, rule of law, institutional and regulatory quality, and control of corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in Fitch’s Sovereign Rating Model.

Regarding fiscal developments, the report indicated that Kuwait’s public spending for FY25 is expected to be KWD 24.5 billion (approximately USD 80.8 billion), which represents 51% of the forecasted GDP. This includes efforts to rationalize spending, with wages expected to be balanced by reductions in subsidies, capital expenditures, and other expenditures. However, public revenues are anticipated to continue to decline due to lower oil revenues, as a result of the extended OPEC+ agreement through the second quarter of this year.

Kuwait continues to rely on assets from the General Reserve Fund to cover any budget deficits and meet domestic commitments. Fitch expects the government to resume public borrowing in FY25/26, with around 30% of the deficit financed through debt instruments.

Fitch highlighted that although Kuwait’s debt-to-GDP ratio remains low at around 2.9% in FY24/25, it is expected to rise to around 6% in FY25/26 and 9.2% in FY26/27. Despite the maturity of international bonds worth USD 4.5 billion in March 2027, Fitch projects that Kuwait’s debt levels will remain well below the average for countries with the same sovereign rating, which is expected to be around 51% of GDP in 2026.

While Kuwait remains highly sensitive to fluctuations in oil prices and production levels, Fitch indicated that the impact of regional conflicts on the country’s financial outlook has been minimal. This, coupled with Kuwait’s strong external position and substantial government reserves, supports the stable outlook for its sovereign rating.

While Kuwait faces long-term fiscal pressures related to its oil dependence and large public sector, the country’s strong external assets, ongoing reforms, and fiscal management efforts help maintain its creditworthiness and stable outlook.