Fitch Affirms Kuwait At 'Aa-' With Stable Outlook

(MENAFN- Kuwait News Agency (KUNA)) KUWAIT -- On oil assumptions and dependence, Fitch analysis reads, "Our forecasts assume an average oil price of USD 77/bbl for FY23, down 23 percent from FY22, while oil output is likely to fall by 4.1 percent to 2.612 million b/d in FY23, due to OPEC+ supply cuts.
"In FY24, we assume Kuwait's average oil price falls to USD72/bbl and that Kuwait's crude output will return to 2.676 million b/d as per outlined OPEC quotas."
Kuwait aims to boost capacity to 3.15 million bbl/day by FY27, with increases both onshore and in the neutral zone.
Budget outcomes are highly sensitive to changes in oil price and production. A USD 10/bbl change in our oil price assumption for 2023 would affect the budget balance by 4.8 percent of GDP, other things equal. A change of 100,000 bbl/day of production affects the budget balance by 1.5 percent of GDP.
On governance, the report says that Kuwait has an (Environmental, Social and Governance) ESG Relevance Score (RS) of '5[+]' for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption.
These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model.
Kuwait has a medium WBGI ranking at the 51st percentile reflecting low scores for voice and accountability, and middling scores across other governance indicators.
Regarding rating sensitivities, Fitch cited factors that could, individually or collectively, lead to negative rating action/downgrade, saying that signs of greater pressure on GRF liquidity, for example, as a consequence of the continued absence of a new debt law or other extraordinary measures to ensure that the government can continue to make good on its payment obligations, including but not limited to debt service.
Significant deterioration in fiscal and external positions, for example, due to a sustained period of low oil prices or an inability to address structural drains on public finances.
On sovereign rating model (SRM) and qualitative overplay (QO), Fitch's proprietary SRM assigns Kuwait a score equivalent to a rating of 'AA' on the Long-Term Foreign-Currency (LT FC) IDR scale.
Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final LT FC IDR by applying its QO, relative to SRM data and output, as follows:
Structural Features: -1 notch to reflect political constraints on enacting key economic and fiscal reforms, as illustrated by the difficulties in passing a debt law and the lack of progress on addressing structural public finance challenges stemming from heavy oil dependence, a generwelfare state and a large public sector.
"We have removed the previ-1 notch on public finances as the SRM output declined from 'AA+' to 'AA' and we assessed that the model, combined with the -1 notch on the structural features, now better captures Kuwait's structural and fiscal rigidities," the report noted.
Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR.
Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.
The Country Ceiling for Kuwait is 'AA+', 2 notches above the LT FC IDR.
This reflects strong constraints and incentives, relative to the IDR, against capital or exchange controls being imposed that would prevent or significantly impede the private sector from converting local currency into foreign currency and transferring the proceeds to non-resident creditors to service debt payments.
Fitch's Country Ceiling Model produced a starting point uplift of +2 notches above the IDR. Fitch's rating committee did not apply a qualitative adjustment to the model result. --
Kuwait has an ESG Relevance Score of '5[+]' for Political Stability and Rights as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and a key rating driver with a high weight.
As Kuwait has a percentile rank above 50 for the respective Governance Indicator, this has a positive impact on the credit profile.
Kuwait has an ESG Relevance Score of '5[+]' for Rule of Law, Institutional and Regulatory Quality and Control of Corruption as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight.
As Kuwait has a percentile rank above 50 for the respective Governance Indicators, this has a positive impact on the credit profile.
Kuwait has an ESG Relevance Score of '4' for Human Rights and Political Freedoms as the Voice and Accountability pillar of the World Bank Governance Indicators is relevant to the rating and a rating driver.
As Kuwait has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile.
Kuwait has an ESG Relevance Score of '4[+]' for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for Kuwait, as for all sovereigns.
As Kuwait has track record of 20+ years without a restructuring of public debt and captured in our SRM variable, this has a positive impact on the credit profile, Fitch analysis concluded. (end)
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