Moody’s sees possible downgrade for Kuwait

Moody's Investors Service has placed the sovereign ratings of Kuwait on review for possible downgrade. The affected ratings are the Aa2 local and foreign currency government bond ratings and the Aa2 country ceiling for foreign currency bank deposits.
"Today's rating action was primarily motivated by the recent resignation of Kuwait's government and the dissolution of parliament — the latest bout in the disruptive conflict between the executive and the legislature. In Moody's opinion, these events reflect an erosion of institutional strength which is of particular concern given the current challenges presented to Kuwait by the global economic and financial crisis," said Tristan Cooper, Dubai-based senior analyst at Moody's Sovereign Risk Group.
The erratic and tumultuous policy environment in Kuwait, with both the executive and legislative branches of government affected, is therefore weighing on Moody's opinion of Kuwait's sovereign creditworthiness.
The rating agency also noted that transparency regarding the government's financial assets is very poor, which hinders analysis.
However, Moody's was careful to stress the many positive elements that support Kuwait's high investment-grade ratings. These include an exceptionally strong government balance sheet and net external position, wide fiscal and current account surpluses, a high level of GDP per capita, and extensive oil reserves. Such strengths should enable Kuwait's economy and public finances to absorb potentially large shocks without affecting the government's capacity to repay its debt obligations.
Given these important credit strengths and in the absence of any dramatic further developments, Moody's envisages that any possible ratings downgrade resulting from its review would be confined to one notch.