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    Moody's downgrades Kuwait on liquidity squeeze, weak governance

    Synopsis

    When Kuwait last issued debt in the international markets in 2017, its bonds traded close to paper issued by Abu Dhabi, considered the safest credit in the region, as a vast oil-driven financial wealth gave investors confidence.

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    Moody's downgraded Kuwait's rating citing higher liquidity risks and weaker governance and institutional strength, as the Gulf state, battered by low oil prices, struggles to pass a law allowing it to issue international debt.

    This is the first time Kuwait was downgraded by Moody’s.

    "In the continued absence of legal authorization to issue debt or draw on the sovereign wealth fund assets held in the Future Generations Fund, available liquid resources are nearing depletion, introducing liquidity risk despite Kuwait's extraordinary fiscal strength," the rating agency said.

    Moody's Investor Service downgraded Kuwait by two notches to A1 from Aa2.

    When Kuwait last issued debt in the international markets in 2017, its bonds traded close to paper issued by Abu Dhabi, considered the safest credit in the region, as a vast oil-driven financial wealth gave investors confidence.

    But the nearly $140 billion economy is now facing a yawning deficit of $46 billion, caused by the coronavirus crisis, low oil prices, and a back and forth between government and parliament over a new debt law which is limiting its ability to boost state coffers.

    Moody's said the "fractious relationship" between parliament and the government was a long-standing constraint in its assessment of Kuwait's institutional strength.

    But the deadlock over funding strategy and a lack of meaningful fiscal adjustment measures "point to more significant deficiencies in Kuwait's legislative and executive institutions and policy effectiveness than previously assessed."

    Earlier this month Kuwait cut around $3 billion from its 2020/2021 budget as it seeks to save money.

    The debt law that the government is trying to pass would allow it to raise its debt ceiling and tap international investors. But lawmakers first want to see plans to reform the economy and shift its heavy reliance on oil, which made up 89% of revenues last fiscal year.

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    6 Comments on this Story

    Vaithianathan R M32 days ago
    Kuwaitis were arrogant people with flush oil money. Now it is the opposite. With alternative energy sources and electric cars, Arab countries will loose their potencies, and the remaining black gold will remain in the ground. Thank goodness, less climate change. WHAT GOES UP, MUST COME DOWN. OIC will be irrelevant in the next 20 years. This has started with Kuwait. Buyers should now form a cartel, with a moniker A-IOC, to control the sellers pricing.....
    Raghavendra Venkatesh Rao33 days ago
    i can't believe it...the once super rich Persian Gulf countries are short on money. I am glad to see that the tables seem to be turning in India's favour. our black gold are our human resources. i hope that the Arabian countries get over their money problems.
    Nikhilvishwas Pervala33 days ago
    Kuwait has finally lost it LUXURY HUB...This is the first hit to the Arab Nations as they are heavily donaminated by Oil market..Next Hit would be Bahrain and UAE as they are small and cannot bring more money to run the country due to low oil prices..SAUDI ARABIA should help this small nations as they can with stand to some extent as they have diversified thier investments into INDIA,HONG KONG,SINGAPORE AND THE US and generating different incomes for SAUDI is a good plan which they have implemented over a decade.
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