Moody's affirms Kuwait's Aa2 government bond rating with stable outlook

The leading global credit rating provider Moody's Investors Service affirmed Friday Kuwait's government bond rating at Aa2 with a stable outlook. According to Moody's press release, Kuwait's country ceilings were affirmed as well. It also pointed out that the long-term local currency country risk ceilings remain at Aa2, the same level as the long-term foreign currency debt and bank deposit ceilings. "The short-term foreign currency ceilings are P-1. These ceilings act as a cap on ratings that can be assigned to the foreign and local-currency obligations of entities domiciled in the country," reads the press release. The rating agency explained that "Kuwait's Aa2 rating is primarily underpinned by its substantial hydrocarbon resource base, which is reflected by its position as the eighth-largest oil producer globally, with production of oil reaching 3.1 million barrels per day (bpd) in 2012." It argued that although production began in the 1940s, hydrocarbon reserves remain plentiful and Kuwait ranks first globally in per capita terms, with about 26,800 barrels per capita. "Moreover, at the current rate of production, proven oil reserves would last 89 years, similar to the United Arab Emirates (Aa2 stable) and higher than oil producers in the Commonwealth of Independent States." Moody's noted that the monetization of hydrocarbon reserves has strengthened government finances to a very high degree. "Kuwait has recorded fiscal surpluses of 30 percent of GDP on average over the past 10 years, which have remained large despite increases in spending since 2010. Kuwait also has the lowest fiscal breakeven oil price (which the IMF estimates at USD52 per barrel in 2014, including investment income) in the Gulf Cooperation Council. As a result, government debt is very low and falling, both in nominal terms and as share of GDP." It asserted that Kuwait's very strong external payments position reduces its vulnerability to external financial and economic risks to a very low level. "Current account surpluses averaged 35 percent of GDP over the past 10 years, which helped to build up significant reserves, predominantly managed by the Kuwait Investment Authority, and reflected in a strong net asset international investment position of 51.5 percent of GDP as of end-2012." It concluded that the constraints to the rating come from institutional factors and long-standing regional geopolitical event risks. The agency has referred to two reasons for the projected stable outlook for Kuwait. "The stable rating outlook balances Kuwait's very strong government financial and external position against the following challenges: (1) slow progress with regard to economic diversification away from the hydrocarbon sector; and (2) a domestic political situation characterized by a confrontational relationship between parliament and government. "However, Moody's notes that these challenges do not pose an immediate threat to Kuwait's creditworthiness."