Sovereign Credit Rating – Standard & Poor’s

Last week, Standard & Poor’s Agency published its report on Kuwait’s sovereign credit rating, which was a continuation of its good level at “AA” with a stable outlook. As we mentioned repeatedly, that is a credit rating that has nothing to do with the financial or economic stability of Kuwait in the medium to long terms. It is good because it lowers the cost of financing when the country or its private institutions need to borrow from the global market but it does not judge the safety of using borrowed funds at the sovereign level but only confirms the ability of lenders to recover what they lent due to the availability of financial reserves in the state.

In the agency’s report, there is an explicit text that states that the stable outlook for internal and external balances will remain strong over the next two years due to the state’s ownership of sovereign foreign assets that are enough to compensate for Kuwait’s inability to diversify its income sources and its continuing overwhelming dependence on oil. Oil, according to the agency, dominates about 90% of the proceeds of exports and public revenues, and this is its position since the sixties of the last century, despite the fact that all development plans since then have adopted diversification of income sources as their main goal. This means that the agency knows that it is an unsustainable economy. Reading its report does not give any impression of the sustainability of the financial situation of the country as the time span of the report does not cover the element of sustainability and the report audience is only concerned with recovering its money within the limits of the short term.

The agency did not hide its pessimism about the growth of Kuwait economy as it estimated it has weak growth for 2019 and only by 0.5%, and it estimates that this weak growth will continue in 2020 to remain within 0.5% also contrary to the expectations of World Bank. On the fiscal side, it estimated a rate for oil production lower than that estimated in the 2020/2021 budget draft and around 2.65 million barrels per day, that is, about 50,000 barrels per day less than the budget draft estimates, and an oil price is estimated at about US$ 60 a barrel and then it drops to US$ 55. That is, equal to the estimate of the next budget draft.

We must repeat what we have mentioned repeatedly that the agency’s report is correct as it addresses an audience that has a completely different interest from the interest of the local reader. Unless we read it locally in line with our goals and the requirements of the local economy, we will continue to misunderstand its conclusions.