Moody’s raises outlook on Kuwait sovereign ratings to stable

Moody's Investors Service has changed the outlook on Kuwait's Aa2 sovereign ratings to stable from negative prompted by improved government effectiveness reflected by parliament's approval of some long-awaited items of economic legislation; and Kuwait's strong fiscal and external performance relative to its rating peers.
When Moody's assigned a negative outlook to Kuwait in June 2009, it had stated that it would be ready to move the outlook back to stable if the relationship between the government and the parliament had improved, easing the formulation and implementation of policy and enabling Kuwait to move forward in its efforts to develop and diversify its economy. In Moody's opinion, this condition has been met.
"Since the formation of a new government in June 2009, a number of important pieces of economic legislation have been passed by the Kuwaiti parliament," said Tristan Cooper, Moody's Head Analyst for Middle East Sovereigns.
The enactment of some of these laws had previously been delayed for many years by disagreements between the executive and the legislature. The new legislation includes a privatisation law, a four-year development plan, a capital markets law and a labour law.
Moody's believes that these laws, despite some limitations, should help to develop the country's limited private sector and attract foreign investment.
"In addition, Kuwait has continued to post impressive fiscal and external current account surpluses despite some adverse effects from the recent global financial crisis," Cooper continued.
Kuwait's fiscal and external performance has been significantly stronger than that of its rating peers. Moody's expects this to remain the case over the medium term based on current oil price projections, notwithstanding an expected significant pick-up in public investment expenditure associated with the government's new four-year development plan.
Moody's currently has a negative outlook for Kuwait's banking system reflecting concerns regarding some elements of the financial sector, particularly among investment companies, as well as more general industry concentrations to commercial real estate and stock market investments.
"However, from a sovereign perspective, these weaknesses are offset by the very strong financial position of the government, which can afford to provide substantial support to Kuwait's banking sector in case of systemic difficulties," explained Cooper. Despite deteriorating asset quality, Kuwait's commercial banks continue to have overall comfortable levels of capitalisation and liquidity.