S&P cuts Kuwait rating on lack of deficit-financing strategy

Ratings agency S&P Global Ratings cut Kuwait's rating by one notch citing the Gulf state’s lack of a funding strategy to finance its deficit.

Hit hard by lower oil prices and the COVID-19 pandemic last year, Kuwait faces liquidity risks largely because parliament has not authorised government borrowing due to a standoff.

S&P cut Kuwait’s rating by one notch to A+ from AA-(minus) and kept its outlook on the country negative, it said in a statement late on Friday.

“The downgrade reflects a persistent lack of a comprehensive funding strategy despite the central government’s ongoing sizeable deficits,” it said.

“Due to parliamentary opposition, the government has so far been unable to pass a law giving it the authority to issue debt or gain immediate access to its large stock of accumulated assets”.

S&P expects central government deficits to average 17% of gross domestic product annually between 2021 and 2024. In the fiscal year that ended in March, the country ran a central government deficit of 33% of GDP, S&P estimated.

Despite a sluggish pace of reforms, the agency said it still expected Kuwait to eventually adopt a debt law that would allow the government to borrow or overcome parliamentary opposition to gain access to funding alternatives.

S&P had already cut the rating of the OPEC member state last year due to lower oil prices.

Oil-rich Kuwait is the only Gulf monarchy to give substantial powers to an elected parliament, which can block laws and question ministers.

Frequent rows between the cabinet and assembly have led to successive government reshuffles and dissolutions of parliament over decades, hampering investment and reforms.

(Reuters)