Sovereign Credit Rating – “Standard & Poor’s”

Kuwait maintained its good credit rating in “Standard & Poor’s” report issued on July 19, 2019 and its rating continued at (AA) with a stable future outlook, which is commendable. This good rating is useful because it reduces borrowing costs if the State borrows to cover its expenses, the matter which is prohibited until now because the government is unable to rationalize and stop its corruption. It however remains useful as it cuts down borrowing costs for the private sector’s institutions if they resort to the global market for financing.

The term of the above rating ends at 2022. “Standard & Poor’s” Agency identified the conditions of lifting or reducing the rating. The decision in both cases is subject to the developments of the oil market and the geopolitical events, the variables which are difficult to influence. It is also linked with internal reform policies which the Agency believes are difficult to achieve. The main basis for the good quality of credit rating is the assurance of the lender or the dealer financially or commercially with Kuwait that it has savings equal to 400% the volume of its economy. Those savings might score 430% of that volume by the end of the current year. 

Consequently, there is no fear in the short term that it may not meet its commitments.

We believe the above report is professional and balanced. It addresses its clients who deal with Kuwait either commercially or by credit. Kuwait from a financial aspect and for two or three years is able to meet its obligations. The balanced element in the report is that it presents the country’s economic condition and performance in a completely different manner from its financial position. The weak economic performance is permanent unless it is subject to essential reforms while the financial position is temporary and is linked with uncontrollable variables. 

In the economic side and all the figures and commentaries are copied exactly from the agency’s report which mentions that the simple mathematical average for the real growth of Kuwait’s GDP for the years 2013-2019 didn’t exceed 0.61%, i.e. less than 1% or much less than the demographic growth rate.

Due to the weak growth, the per capita share of the GDP for the seven years above achieved sustained negative growth that ranged from -0.5% per year at the lowest to -2.9% at the highest. The report also mentions that the nominal GDP dropped from US$ 174 billion in 2013 to US$ 136 billion in 2019 and that the nominal per capita share dropped from US$ 43.9 thousand in 2013 to an average of US$ 28.8 thousand in 2019. The report also mentions that Kuwait’s reliance on oil did not change. Oil exports form 90% of exports and 90% of public expenditures are financed by oil revenues. This means that the financial and economic reform is no more than a mirage. 

We would like to remind that there is danger in the misconception between what is financially temporary and the sound sustainable economy, and the danger comes from the action of some officials in marketing the report as a certificate of sound economic performance. That misconception might provide room for more financial policy expansion. It also impedes reform efforts and becomes tolerable with the continued waste and corruption in utilizing the financial resources together with deteriorating economic reform opportunities.