Credit Rating

On March 27th 2020, Standard & Poor’s Agency downgraded Kuwait’s sovereign credit rating from AA to AA-. Its justifications for this downgrade coincide with the repeated warnings addressed to Kuwait’s public administration focused on its failure in the financial and economic reform. The issue is that when there are variables that are beyond your ability to influence – Coronavirus and oil prices for example – you are exposed to the consequences without being able to fight them because you have not done enough proactive policies to mitigate such issues. For instance, the size of public budget expenditures is an important element, which if an attempt had been made to control or direct it correctly to support the overall economic performance under these severe circumstances, this visible panic and fear of today would not have happened and the credit rating agency would not have reduced Kuwait’s rating. Despite the current effects due to Coronavirus and because of the impact of the oil price war, credit rating agencies do not pay much attention to the general financial and economic situation of the country, but they are rather concerned in their reports with their clients who deal financially and commercially with the country.

And as long as there is a big deficit in the general budget coupled with Kuwait’s insistence on continuing this approach, the agency finds with a mathematical calculation that Kuwait may consume its savings in a much shorter time than expected or what they call “financial bumpers”, hence they immediately downgraded the credit rating. We have been warning a long time ago that these warnings should have been read correctly to benefit from them, but now we have to bear paying a higher interest rate whether in sovereign borrowing which has always been demanded by the government. Likewise, the private sector has to pay higher interest rates as a result of this downgrade. This could have been avoided had we pursued prudent economic and financial policies a long time ago.

This, unfortunately, did not happen and we are paying the price now. But if we take advantage of this warning today and do what we are supposed to do, we believe that the credit rating agency will re-raise their rating especially if that coincides with the beginnings of controlling the spread of the Corona epidemic and with halting the oil price war or at least supporting oil prices by limiting some supply. That will, together with improved global economic performance, lead the country to a better position.

The problem is that every time Kuwait is exposed to a crisis and as soon as oil prices rise again, the financial policies become uncontrolled again to a worse level. This time we hope to benefit from the agency warnings, which may be followed by other agencies. This panic that afflicted us from the Corona might lead to a fundamental start in the complete surgery of our economic and financial policies. Other than that, we believe that Kuwait’s ratings may continue to decline from all agencies if we do not succeed in benefiting from this shock.