Fitch Ratings has affirmed Kuwait's Long-term foreign currency rating at AA-, its Short-term foreign currency rating at F1+ and its Long-term local currency rating at AA. The Outlook remains Stable, stated a press release
Kuwait experienced an atypical year in 2003, when developments in Iraq first raised, and then greatly reduced, geopolitical risk. A surge in business confidence followed, and double-digit percentage increases in the crude oil export price and oil production led to an estimated gross domestic product (GDP) growth of nearly 12 percent.
"For the first time since recovering from invasion in the early 1990s, Kuwait's economy was the fastest growing of any rated sovereign last year", said sovereign analyst at Fitch, Sebastien Clerc-Renaud. "Reform implementation is weak, but with a strong, well-supervised banking system, the threat from Iraq lifted and the benefit of high oil prices for four consecutive years, there is an opportunity to move structural changes ahead more quickly."
Kuwait's fiscal performance and balance of payments are among the strongest of any sovereign. On the back of persistent high oil prices, the fiscal and current account balances have averaged 29 percent and 23 percent of GDP respectively since 1999. In addition to oil earnings, Kuwait's international investment income is an important source of foreign exchange and government income.
Fitch estimates investment income accounted for 22 percent of fiscal revenues and 21 percent of foreign exchange receipts last year, and is likely to be even higher in 2004 as oil prices and production levels fall. UN-administered compensation payments related to the Iraqi invasion and occupation have also added to the balance of payments surplus in recent years, but Fitch expects these to decline over time, and there is some uncertainty over their continuation in the medium term.
Kuwait's fiscal and balance of payments strengths are supported by the state's long history of devoting a significant share of oil revenues to the accumulation of external assets. Fitch estimates gross external assets - excluding non-bank private sector holdings and equities - to be just over $100 billion, nearly 250 percent of GDP. Gross external debt is about 50 percent of GDP, leaving Kuwait in a very strong net external creditor position.
Structural economic constraints remain unchanged, and include the relatively small private sector and the need to create employment opportunities for the expanding labor force. The oil sector generated about 45 percent of GDP last year, as well as 72 percent of government revenue and more than 90 percent of merchandise exports. Modest economic diversification efforts are underway, but the overall economic reform process is slow. — (menareport.com)
© 2004 Mena Report (www.menareport.com)
