Kuwait was downgraded by S&P Global Ratings for a second time in less than two years after a fall in oil revenue and increased spending pressured the Persian Gulf nation’s fiscal outlook.
The sovereign credit rating was cut one level to A+ from AA-, the fifth-highest investment-grade level, according to a statement Friday. S&P now rate Kuwait two notches lower than Fitch Ratings and on par with Moody’s Investors Service, which lowered its own assessment of the country last year for the first time . S&P’s outlook for Kuwait is negative.
“The downgrade reflects the persistent lack of a comprehensive funding strategy despite the central government’s ongoing sizable deficits,” according to S&P analysts. “We consider that these persistent delays could ultimately leave Kuwait more vulnerable to potential future terms-of-trade shocks.”
The rating agency downgraded the sovereign in March 2020, citing materially lower oil prices. Although crude rebounded this year to more than $70 per barrel, a delay to proposed laws that would allow the government to borrow or withdraw from its $700 billion Future Generations Fund has left the treasury cash-strapped amid increased spending during the pandemic and delayed reforms.
Kuwait’s economy will grow by only 0.5% in real terms in 2021, following a 8.9% contraction last year on oil production cuts and pandemic effects, according to S&P. It expects Kuwait’s central government deficits will average 17% of GDP over 2021-2024.