By Andy Sambidge
Rating agency sees non-oil GDP growth at 5%; has concerns over political turmoil
Kuwait's foreign assets are estimated to be worth more than $320bn, equivalent to nearly double the Gulf state's GDP, Fitch Ratings has said in a new report.
It said the assets resulted from double-digit budget surpluses registered every year since 1999 thanks to receipts from the country's large oil reserves, which make up 6.1 percent of total world oil reserves.
Fitch has affirmed Kuwait's long-term foreign and local currency issuer default ratings at 'AA', with stable outlooks on both.
However, the rating agency added that Kuwait's exposure to the oil sector - half of GDP and 83 percent of government revenue - was a vulnerability, given oil price volatility and regional geopolitical threats.
And it said it expects tensions between MPs and the government to persist and to continue to constrain reforms.
"Difficulties in reaching agreement at the political level have frustrated efforts to diversify away from oil," Fitch added.
Fitch said it projects oil production levels and prices will ensure continuing high budget surpluses at 27 percent of GDP in financial year 2012/13 and 22 percent in 2013/14.
The rating agency added that it expects oil production to average 2.8 million barrels per day in 2012 and to remain flat in 2013 and 2014.
Fitch's report said it expects tensions between MPs and the government to persist and to continue to constrain reforms.
The opposition between MPs and the government has intensified in recent months and harsh disputes have led to two dissolutions of parliament in seven months.
Fitch said it expects non-oil GDP growth to remain at around five percent up to 2014 while government spending will be the main support in the form of increased public wages and capital expenditure.
Projects from the Development Plan have been delayed so far due to political disputes over implementation and Fitch said a low execution rate of the plan was "a key risk to the growth forecast".
Fitch added that the quality of assets held by domestic banks was improving gradually with non-performing loans declining to 7.3 percent in 2011 from 11.5 percent in 2009.
"Political dysfunction has reached a new stage and could weigh on the ratings if left unresolved as it affects government effectiveness. Against this, Fitch also notes that Kuwait has relatively open political institutions compared with GCC peers, which reduces the risk of major civil unrest," the Fitch report said.
"Success in diversifying the economy away from oil, and developing the private sector and Kuwaiti employment in the private sector would be rating positive," it added.