Standard & Poor’s Ratings Services said that the Middle East region’s ratings are constrained by the geopolitical tensions in the region as well as what S&P see as insufficient popular representation due to Kuwait’s electoral system.
“Geopolitical risks in the region are rising, with the expansion of the IS militant group in Iraq and Syria posing a potential threat to the wider region and Kuwait. Domestically, we note limited policy visibility in light of disputes between the powerful government and vocal parliament,” S&P in a statement said.
“Domestic political tensions rose in 2012. Parliament was suspended and dissolved and large street protests demanded further political reform. Kuwait held its third parliamentary election in 18 months in July 2013. Continued tensions between the parliament and the executive are likely to hamper policy implementation. Nevertheless, we have factored Kuwait’s political and geopolitical framework into the current rating.
“We view Kuwait’s creditworthiness as susceptible to any future sharp and sustained decline in oil prices. The oil sector accounts for about 60% of nominal GDP, 90% of exports, and 80% of general government revenues (including investment income from the Kuwait Investment Authority).
“The stable outlook reflects our expectations of continued strength in Kuwait’s fiscal and external positions, backed by oil revenues. We expect these
strengths to offset risks related to an undiversified economy and what we assess as a volatile and unpredictable political system, in addition to increasing geopolitical tensions in the region.
“We could raise the ratings if political reform enhances institutional effectiveness and improves the long-term diversification of the economy. Conversely, we could lower the ratings if Kuwait’s domestic political stability were to significantly deteriorate, if geopolitical risks were to materialize, or if a sharp fall in oil prices were to undermine Kuwait’s wealth levels.”