The Peninsula
DOHA: Moody’s Investors Service has placed Kuwait’s Aa2 long-term issuer rating on review for downgrade. During the review, Moody’s will assess the extent of the impact of the further sharp fall in oil prices, which Moody’s expects to remain low for several years, on Kuwait’s economic performance and the balance sheet of its government in the coming years.
In particular, the review will allow Moody’s to determine the extent to which Kuwait’s economic and fiscal strength insulate it from the need to take a rating action to reflect the impact of the price shock, QNA reported quoting Kuwait News Agency.
Moody’s expects to complete the review within two months, according to a statement released by the agency on Friday.
Kuwait is highly dependent on hydrocarbons to drive economic growth and to finance government expenditure. Oil and gas accounted for over 90 percent of total goods exports and roughly 63 percent of nominal GDP in 2014, the latest date for which full-year official statistics are available. It also provides around 77 percent of total government revenues. Between September 2014 and September 2015, the oil price roughly halved. Since then, it has fallen a further 40 percent.
Moody’s recently revised its oil price assumptions for Brent to $33 per barrel in 2016 and $38 per barrel in 2017, rising only slowly thereafter to $48 by 2019. The structural shock to the oil market is weakening Kuwait’s government balance sheet and its economy, and therefore also its credit profile. Moody’s projects that between 2013 and 2015, revenue as a percentage of GDP declined by 17.5 percentage points and the fiscal balance turned into a deficit of 1.1 percent of GDP in 2015 from a surplus of almost 35 percent in 2013. Moody’s estimates that, during the same period, the country’s current account surplus relative to GDP fell to six percent from around 40 percent, and nominal GDP contracted by more than 30 percent.
Assuming a limited policy response, the depressed oil prices for the coming years would imply a further reduction in government revenues of around 16 percent in 2016 and only a gradual recovery thereafter, with total revenues only recovering to 2009 levels in nominal terms by the end of 2019.
With average annual expenditure growth of about 4.5 percent per year between 2016 and 2019, this would result in an average fiscal deficit of around five percent of GDP for the time period. Assuming a funding mix of 80 percent via debt issuance and 20 percent from government reserves, this would imply a rise in Kuwait’s general government debt stock to around 25 percent of GDP by 2019, up from 7.6 percent in 2014. That would shift Moody’s assessment of the government’s fiscal strength to ‘Very High’ from ‘Very High (+)’.
The Peninsula
DOHA: Moody’s Investors Service has placed Kuwait’s Aa2 long-term issuer rating on review for downgrade. During the review, Moody’s will assess the extent of the impact of the further sharp fall in oil prices, which Moody’s expects to remain low for several years, on Kuwait’s economic performance and the balance sheet of its government in the coming years.
In particular, the review will allow Moody’s to determine the extent to which Kuwait’s economic and fiscal strength insulate it from the need to take a rating action to reflect the impact of the price shock, QNA reported quoting Kuwait News Agency.
Moody’s expects to complete the review within two months, according to a statement released by the agency on Friday.
Kuwait is highly dependent on hydrocarbons to drive economic growth and to finance government expenditure. Oil and gas accounted for over 90 percent of total goods exports and roughly 63 percent of nominal GDP in 2014, the latest date for which full-year official statistics are available. It also provides around 77 percent of total government revenues. Between September 2014 and September 2015, the oil price roughly halved. Since then, it has fallen a further 40 percent.
Moody’s recently revised its oil price assumptions for Brent to $33 per barrel in 2016 and $38 per barrel in 2017, rising only slowly thereafter to $48 by 2019. The structural shock to the oil market is weakening Kuwait’s government balance sheet and its economy, and therefore also its credit profile. Moody’s projects that between 2013 and 2015, revenue as a percentage of GDP declined by 17.5 percentage points and the fiscal balance turned into a deficit of 1.1 percent of GDP in 2015 from a surplus of almost 35 percent in 2013. Moody’s estimates that, during the same period, the country’s current account surplus relative to GDP fell to six percent from around 40 percent, and nominal GDP contracted by more than 30 percent.
Assuming a limited policy response, the depressed oil prices for the coming years would imply a further reduction in government revenues of around 16 percent in 2016 and only a gradual recovery thereafter, with total revenues only recovering to 2009 levels in nominal terms by the end of 2019.
With average annual expenditure growth of about 4.5 percent per year between 2016 and 2019, this would result in an average fiscal deficit of around five percent of GDP for the time period. Assuming a funding mix of 80 percent via debt issuance and 20 percent from government reserves, this would imply a rise in Kuwait’s general government debt stock to around 25 percent of GDP by 2019, up from 7.6 percent in 2014. That would shift Moody’s assessment of the government’s fiscal strength to ‘Very High’ from ‘Very High (+)’.
