Moody's affirms Kuwait's A1 rating with stable outlook

25/05/2026 00:31 AST

Moody's Ratings has affirmed Kuwait's long-term foreign and local currency issuer ratings at A1, maintaining a stable outlook, even as the ongoing regional conflict and the effective closure of the Strait of Hormuz have severely disrupted the country's oil exports.

In its latest report, the credit rating agency highlighted Kuwait's exceptionally strong sovereign balance sheet as the primary anchor for the affirmation, with the country's government financial assets estimated at around four to five times the nation's gross domestic product.

The closure of the Strait of Hormuz has severely disrupted Kuwait's oil exports. The hydrocarbon sector, which accounted for nearly 45 percent of gross domestic product and 84 percent of government revenue in 2025, has been hit hard.

Moody's projects real GDP to contract by more than 20 percent in 2026, driven almost entirely by a nearly 50 percent drop in crude oil production.

"The affirmation is supported by Kuwait's very high per capita income, which supports economic resilience, and vast, low-cost hydrocarbon reserves that underpin the country's highly competitive position in the global oil market," said Moody's.

It added: "The main constraints are Kuwait's very high hydrocarbon dependence, which exposes its economy and public finances to oil market downturns and carbon transition risks; its exposure to regional geopolitical risks, which is amplified by reliance on the Strait of Hormuz as the sole route for oil exports; and institutional challenges that have in the past impaired reform implementation."

Despite the sharp economic deterioration, the agency expects the government to maintain spending levels close to the approved budget, financed through a combination of market borrowing and drawdowns from its vast reserves.

According to the report, the country's fiscal deficit is forecast to widen significantly to around 21 percent of GDP in 2026/27, before narrowing in subsequent years.

Moody's projected that shipping through the Strait of Hormuz will remain limited until the third quarter of 2026, with a gradual resumption thereafter and a full return to pre-conflict levels by the first quarter of 2027.

Once exports normalize, elevated global energy prices and restored production are expected to drive a strong economic and fiscal recovery for Kuwait.

According to Moody's, the country's rating could be upgraded if there is substantial progress in economic diversification, strengthened institutions, and a durable reduction in regional geopolitical tensions.

A downgrade could occur if the conflict is prolonged significantly, causing major damage to energy infrastructure, or if it leads to substantial erosion of financial assets without an adequate policy response.

Arab News