Despite Oil Dependence Risks, Moody's Emphasizes Kuwait's Credit Strengths

As a result of Kuwait's sizable financial reserves, as well as its oil and gas reserves with low production costs, Moody's Investors Services has highlighted Kuwait's robust credit position. However, the agency warns that Kuwait’s heavy reliance on oil exposes it to certain risks, reported Al-Rai Daily.

A long-term shift away from carbon, coupled with challenging political dynamics, pose challenges for the country to gradually meet this challenge. The stable outlook assigned to Kuwait’s credit rating reflects a balanced risk assessment. Despite current assumptions not taking into account such measures for at least the next two years, Moody's suggests measures to reduce the government's dependence on oil revenues and diversify the economy would enhance credit flexibility.

Moody's cautions, however, that the global shift to cleaner energy sources will gradually reduce oil demand and suppress prices. Kuwait's credit position could be affected by this long-term trend, particularly in the absence of comprehensive financial and economic reforms. Kuwait's credit rating may be raised if the prospects for financial and economic diversification away from oil improve significantly, according to Moody's.

A more positive relationship between the government and the National Assembly that enhances policy effectiveness could also contribute to a higher rating. Conversely, the credit rating could be lowered if the government’s financial strength significantly weakens in the medium term. It may result in widespread financial deficits, declining oil prices, and depleted sovereign wealth reserves due to inability to implement reforms.

Moody's emphasizes the importance of approving the public debt law, which could mitigate government liquidity risks. Credit ratings could be downgraded if these concerns are not addressed, especially if the General Reserve Fund assets are significantly depleted.

Kuwait's economic strength is rated as "A2," primarily due to its abundant oil wealth and low production costs. Nevertheless, the accelerating shift towards carbon-neutral economies globally could exert negative pressure on Kuwait’s economy and government finances. At the current rate of production, Kuwait has the largest ratio of proven oil reserves to production in the Gulf region, lasting approximately 90 years.

Moody's rates Kuwait's institutional strength and governance as "ba1," indicating weaknesses in certain aspects of its framework and effectiveness. Kuwait built large financial reserves during periods of high oil prices, but its progress in financial and economic reforms lags behind peers due to strained relations between the government and National Assembly.

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