Kuwait is seeking to improve the country’s credit rating

The Kuwaiti government decided to assign the General Secretariat of the Supreme Council for Planning and Development to draw up a road map for financial and economic reforms to improve the state’s sovereign classification, which sparked a new debate within economic circles about the collision of these plans again with a parliamentary and political rejection.

This decision followed the announcement by Moody’s, the credit rating agency, to reduce Kuwait’s rating by two degrees from any. II to any.1

Because of the existence of liquidity risks despite the exceptional financial strength of Kuwait.

The Minister of Social Affairs and Minister of State for Economic Affairs of Kuwait Maryam Al-Aqeel, who heads the Supreme Committee for Improving the Kuwaiti Sovereign Rating, said in a press statement, “This classification reflects the degree of appropriateness and the ability of the state to repay sovereign debts based on financial and economic criteria, financial flows, assets and assets in coordination with the Ministry of Finance and the bank. Central and General Investment Authority ”.

She pointed out that “the Supreme Committee for the Improvement of the Kuwaiti Sovereign Rating will define the financial and economic reforms that would contribute to improving the sovereign rating, noting that these reforms are not without legislative requirements necessary to achieve the sustainability of reforms.

It also showed that “the importance of a high sovereign rating for any country in the world is related to its ability to maintain the international position and to attract investors with flexible debt instruments at a lower cost for sovereign borrowing and a lower cost at the level of productive units.”

The minister attributed the decline in the sovereign rating of Kuwait to several factors, most notably the decline in cash liquidity levels, low liquidity in the General Reserve Fund, and the slowdown in addressing financial and economic imbalances. Al-Aqeel stated that the widening budget deficit, low oil prices, and the spread of the new Coronavirus disease (Covid-19) helped to create an exceptional double pressure on the state finances.

“The main reasons for the reduction in the sovereign rating are the scarcity of liquidity due to waste, the National Assembly’s refusal to approve the public debt law and the high risk due to monetary policies that did not keep pace with the economic situation that the world is going through and the decline in oil revenues,” Xinhua agency quoted economic analyst Hajjaj Boukhdour as saying.

Boukhdhour pointed out that the approval of the public debt law can address the problem of liquidity and allow the repayment of loans, but he pointed out that the most appropriate time to pass this law was last March due to the low interest rate and the strong classification of Kuwait then compared to the current time, which will affect the cost of borrowing now.

It is expected that the Supreme Committee for Improving the Kuwaiti Sovereign Rating, according to Minister Al-Aqeel, will submit its final report to the Council of Ministers upon completion, including the road map and implementation mechanisms to improve the state’s sovereign rating. The debt law, which the government is trying to pass, will allow the debt ceiling to be raised, but parliament members required studying economic reform plans before ratifying it.

The Kuwaiti economy faces a deficit of 46 billion dollars due to the Corona crisis and the decline in oil revenues.

The reduction in Kuwait’s credit rating reflects an increase in the government’s liquidity risk and a weaker evaluation of Kuwait’s institutions and the strength of governance, according to the credit rating agency, which confirmed that the liquidity risk of the Kuwaiti government increased in the absence of a legal mandate to issue debt or access the Future Generations Fund.

It previously indicated in its report that “in the continuing absence of a legal mandate to issue a debt or withdraw from the assets of the sovereign wealth fund in the Future Generations Fund, available liquidity resources are about to run out, which poses liquidity risks despite the exceptional financial strength of Kuwait.”

In 2017, Kuwait issued debt on global markets, and its bonds were traded in a range close to the securities issued by Abu Dhabi, which is the safest credit holder in the region because its huge financial wealth derived from oil gave investors confidence.

But the economy, which is close to $ 140 billion in size, is now facing a massive deficit of $ 46 billion due to the Corona crisis, low oil prices, and the debate between the government and parliament over a new debt law, which limits its ability to boost state coffers. Moody’s also said that the “troubled relationship” between parliament and the government is a long-standing obstacle in its assessment of institutional strength in Kuwait.

She also indicated that even if the debt law were passed, it was likely not to present a reliable long-term financing strategy.

But the impasse over financing strategy and the absence of effective financial control “point to more obvious deficiencies in Kuwait’s legislative and executive institutions and policy efficiency than have been previously assessed”.

Kuwait this month cut about $ 3 billion from the 2020-2021 budget as it seeks to secure funds.

The debt law that the government is trying to pass will allow the country to raise its debt ceiling and address international investors. But lawmakers first want to see plans to reform the economy and shift from the heavy reliance on oil that accounted for up to 89 percent of revenues in the last fiscal year.