This is the first time that Moody’s has downgraded Kuwait.
“In the continuing absence of legal authorization to issue debt or use sovereign wealth assets in the Future Generations Fund, available liquid resources are being depleted, introducing liquidity risk despite Kuwait’s extraordinary fiscal strength,” the rating agency.
Moody’s Investor Service downgraded Kuwait’s rating by two notches to A1 from Aa2.
When Kuwait last issued debt on international markets in 2017, its bonds were trading close to the paper issued by Abu Dhabi, considered the safest credit in the region, as vast oil-fueled financial wealth gave investors confidence.
But the nearly $ 140 billion economy now faces a massive $ 46 billion deficit, caused by the coronavirus crisis, low oil prices, and a back and forth between government and parliament over a new debt law limiting its ability to boost state coffers.
Moody’s said the “troubled relationship” between parliament and the government was a long-standing limitation in its assessment of Kuwait’s institutional strength.
But the stagnation of the funding strategy and the lack of significant fiscal adjustment measures “point to more significant deficiencies in Kuwait’s legislative and executive institutions and in the effectiveness of policies than previously evaluated.”
Earlier this month, Kuwait cut around $ 3 billion from its 2020/2021 budget as it seeks to save money.
The debt law that the government is trying to pass would allow it to raise its debt ceiling and attract international investors. But lawmakers first want to see plans to reform the economy and shift its heavy reliance on oil, which accounted for 89% of revenue last fiscal year.
.
