Fitch Reaffirms Kuwait’s AA- Credit Rating, Citing Strong Fiscal Position

Fitch Ratings has reaffirmed Kuwait’s AA- Long-Term Foreign-Currency Issuer Default Rating (IDR) with a stable outlook, citing the country’s robust fiscal standing and external financial stability.

According to the U.S.-based credit rating agency, Kuwait maintains the strongest external balance sheet among all sovereign nations it assesses, with net foreign assets projected to reach 601% of GDP this year, up from an estimated 582% in 2024. The AA- rating reflects a very low credit risk and strong financial commitment capacity, according to Fitch.

Kuwait’s Fiscal Strength and Reform Efforts

Kuwait’s high rating aligns with a broader trend in the Middle East, where nations are actively diversifying their economies to reduce reliance on crude oil revenues.

“The recently-appointed government has initiated reforms aimed at reducing reliance on oil revenue, improving government efficiency, and rationalizing spending, capping it at 24.5 billion dinars ($79.53 billion), which accounts for about 51% of GDP,” Fitch stated.

One of Kuwait’s key fiscal measures includes implementing a 15% domestic minimum top-up tax on multinational corporations, which took effect on January 1. The tax is expected to generate 250 million dinars annually (0.5% of GDP), with revenue collection beginning in 2027. Additionally, the government plans to introduce a long-delayed excise tax by March 2026.

While Fitch considers the recent economic reforms a positive step, it noted that a significant overhaul of the country’s generous welfare system and high public wages (which account for 79% of total expenditures and 40% of GDP) is unlikely in the short term due to strong public support and favorable oil prices.

Debt and Oil Revenue Outlook

Despite Kuwait’s strong financial position, Fitch highlighted some economic challenges. The government’s debt-to-GDP ratio is expected to rise to 6% in FY25 and 9.2% in FY26, partly due to a $4.5 billion Eurobond maturity in March 2027.

Additionally, oil revenues are expected to decline in FY25, as OPEC+ continues production cuts to stabilize crude markets. While Kuwait’s non-oil revenues are projected to grow, they will likely fall short of the government’s 2.9 billion dinar target.

To enhance liquidity, the Kuwaiti government is working to pass a new debt law, allowing it to raise capital through borrowing. However, even without the law, Fitch stated that Kuwait possesses substantial financial assets to meet its obligations in the coming years.

Challenges and Governance Constraints

Fitch identified weaker governance, heavy oil dependence, and a large public sector as key constraints affecting Kuwait’s credit rating. The agency emphasized that the country faces long-term fiscal pressures due to its extensive welfare system and slow progress on structural reforms.

“Prospects remain unclear for meaningful fiscal adjustments to address long-term challenges,” Fitch noted, though it acknowledged signs of progress in Kuwait’s economic policies.

Despite these hurdles, Kuwait’s financial reserves and ongoing economic reforms position it favorably in global markets, reinforcing its AA- rating with a stable outlook.