RIYADH: Fitch Ratings has affirmed Kuwait’s long-term foreign-currency issuer default rating at AA- with a stable outlook, citing the country’s strong fiscal and external balance sheets. 

The rating is supported by Kuwait’s substantial financial buffers, which the Kuwait Investment Authority manages. Yet Fitch warned that reliance on hydrocarbons, an oversized public sector, and governance scores that lag peers remain key risks. 

Public wages and subsidies account for 41 percent of gross domestic product, or 81 percent of government spending. 

The agency said Kuwait’s external balance sheet remains the strongest among all Fitch-rated sovereigns. “We forecast its sovereign net foreign assets will rise to 607 percent of GDP in 2025, from an estimated 576 percent in 2024, more than 10x the ‘AA’ median,” Fitch said.

“Prospects remain uncertain for meaningful structural reforms to reduce reliance on oil revenue,” even as the government proceeds with gradual spending rationalization and other reform measures, Fitch’s latest rating said.

The government recently enacted a long-delayed financing law that allows debt issuance for the first time since 2017. The legislation sets a borrowing cap of 30 billion Kuwaiti dinars ($98.1 billion) over 50 years. 

Since June, authorities have issued 1.2 billion dinars in domestic bonds, equivalent to 2.4 percent of GDP, easing pressure on the General Reserve Fund and supporting local capital market development. 

Nonetheless, Kuwait’s progress in diversifying its revenue base remains limited. Non-oil revenue continues to lag behind regional peers, averaging 8 percent of non-oil GDP between 2022 and 2024, compared to a Gulf Cooperation Council median of 10.2 percent. 

A 15 percent domestic minimum tax on multinational corporations came into effect in January, but the introduction of a value-added tax and the long-planned GCC excise tax appears unlikely in the near term. 

Fitch projects a reported budget deficit of 5.6 percent of GDP in fiscal year 2025 under the government’s methodology, which excludes investment income, compared to 2 percent the previous year. 

This widening gap is attributed to declining oil revenue and an uptick in capital expenditures. Including estimated returns from sovereign wealth fund investments, Fitch forecasts a budget surplus of 10 percent of GDP. 

Economic growth is expected to rebound modestly, with real GDP projected to grow by 1.7 percent in 2025, following two consecutive years of contraction due to OPEC+ production limits. 

Inflation is forecast to remain below 3 percent through 2027. Oil production is anticipated to increase gradually, but Kuwait’s fiscal break-even oil price is set to remain high at $81 per barrel in fiscal year 2025. 

Despite the resumption of borrowing, Kuwait’s debt levels remain low by international standards. 

Government debt is forecast to rise from 2.9 percent of GDP in 2024 to nearly 12 percent by 2027, still well below the AA median of 52.4 percent. 

However, Fitch warned of Kuwait’s heightened sensitivity to oil price volatility, estimating that a $10 shift in oil prices would impact the budget balance by approximately 4 percent of GDP. 

While Fitch’s Sovereign Rating Model assigns Kuwait a score equivalent to AAA, qualitative adjustments have lowered the final rating due to limited structural reform progress and persistent reliance on oil revenues. 

Kuwait’s governance performance also contributed to the rating constraints, with a World Bank Governance Indicator ranking of 54, reflecting low scores in voice and accountability and middling scores across other dimensions. 

Fitch said a rating downgrade could result from geopolitical instability or a sustained decline in fiscal and external metrics, particularly under prolonged low oil prices. Conversely, a sustained reduction in oil dependence through credible structural reforms could support a future upgrade. 

The country ceiling remains at AA+, two notches above the sovereign rating, reflecting a low likelihood of restrictions on capital flows or foreign currency transactions. 

Regional context 

Across the Gulf, ratings remain mixed. The UAE holds AA ratings from all three major agencies, supported by diversified revenue streams and sovereign assets. Saudi Arabia was upgraded by S&P to A+ in March, while Moody’s maintains an Aa3 rating. Qatar also retains AA/Aa2 ratings with stable outlooks. 

Bahrain, however, remains below investment grade, with B+ ratings from Fitch and S&P and B2 from Moody’s, reflecting ongoing fiscal and external vulnerabilities.