Moody's Investors Service today changed the outlook on Kuwait's sovereign ratings to positive from stable in light of the further strengthening of the country's fiscal and external positions as well as the recent clarification regarding the path of succession to the emirship.
The outlook change affects Kuwait's A2 issuer rating for long-term foreign currency government bonds, its A2 issuer rating for long-term domestic currency government bonds, its A2 country ceiling for long-term foreign currency bonds and notes, and its A2 country ceiling for long-term foreign currency bank deposits. Kuwait's country guideline for local currency obligations and its local currency bank deposit ceiling both remain at Aa2 and are not affected by the outlook change.
Moody's said that today's rating action reflects the significant improvement in Kuwait's fiscal and external current accounts over the past several years, which has led to the further accumulation of net foreign assets by both the public and private sectors. Given the dominance of oil in Kuwait's economy, this improvement has mainly been caused by the increase in oil export prices and volumes, which are expected to remain robust over the medium term amid buoyant global demand.
Moody's added that, even if oil prices were to fall, the economy would be resilient to a potential downturn, having been strengthened by the build-up of net assets. The rating agency estimates that the net asset position of the general government alone exceeds 150% of GDP. In addition, oil export prices and volumes would have to decline significantly before the fiscal and external current accounts fell into deficit. Kuwait is therefore less vulnerable to an oil market downturn than most other oil exporters.
Moody's notes that it has also been encouraged by the recent clarification regarding the path of succession to the emirship, uncertainty over which had previously been a rating constraint. In early February 2006, the new emir, Sheikh Sabah al-Ahmad al-Sabah, announced the appointment of a new crown prince and prime minister, both of whom have considerable experience and are reported to be in good health.
