Standard & Poor’s amends Kuwait’s rating outlook to negative


The Minister of Finance: Our position is solid and we must complete the reform of public finance

Source: Reuters

Kuwaiti Minister of Finance, Barak Al-Shitan, said today, Saturday, that the Kuwait Financial Center is “solid”, but we must complete the reform in the public finance, to ensure the sustainability of institutions and the welfare of citizens.

The minister’s comments came in response to the S&P amendment of Kuwait’s future view to “negative” from “stable”, as it said it expects that the general reserve fund will not be sufficient to cover the government’s deficit.

Al-Shitan said in a press statement that adjusting the future outlook is an “automatic result” of low liquidity in the general reserve, noting that the executive and legislative authorities are currently working to find solutions to this challenge.

He explained that the confirmation of Kuwait’s sovereign rating by Standard & Poor’s at AAA puts it in the ranks of countries such as Taiwan and Ireland and at the forefront of most of the Gulf states, “This reflects the strength of the state’s credit and the strength of its financial position, backed entirely by the size of the assets in the reserve fund for future generations.”

Standard & Poor’s revised Kuwait’s outlook to “negative” from “stable”, saying it expects that the main liquidity reserve, the general reserve fund, will not be sufficient to cover the country’s budget deficit.

“The balance of the general reserve fund has been declining steadily over the past three years, but this process has accelerated in recent months after the decline in oil prices and Kuwait’s implementation of the OPEC + agreement to reduce oil production,” the credit rating agency said in a statement.

Kuwait withdraws from its general reserve fund in order to bridge the deficit, which the International Monetary Fund estimates indicate will exceed 11% of GDP this year, compared to a surplus of 4.8% last year.

The credit rating agency expected that the deficit of the central government in Kuwait would be at about 40% of GDP in fiscal year 2020, up from 10% it was estimated last year, estimating that the General Reserve Fund will not be able alone to finance a deficit of this size .

In the absence of other measures, Standard & Poor’s said, the complete depletion of the General Reserve Fund may lead to severe budget pressure for Kuwait, which could prompt an uncontrolled adjustment of spending at a time when economic performance is already weakening.

A government official told Reuters on July 12 that the country was considering selling assets belonging to the General Reserve Fund to the Future Generations Fund as one of the solutions to finance the deficit.

The Future Generations Fund automatically receives 10% annually of government oil revenues, and Fitch Rating Agency estimates that it constitutes about $ 489 billion of the total assets of the Kuwait Investment Authority, which is estimated at $ 527 billion at the end of March.

S&P confirmed Kuwait’s ratings at ‘AA- / A-1 +’.

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