Kuwait Outlook Cut to Negative at Fitch on Debt Gridlock

(Bloomberg) -- Kuwait’s rating outlook was cut to negative from stable at Fitch as political bickering delays reforms and stymies borrowing.

“The revision of the outlook reflects near-term liquidity risk associated with the imminent depletion of liquid assets in the General Reserve Fund in the absence of parliamentary authorization for the government to borrow,” Fitch said in a statement. The rating was affirmed at AA.

Kuwait still doesn’t have a public debt law enabling it to borrow and hasn’t been to the market since a debut Eurobond in 2017. Lawmakers have opposed borrowing to cover the country’s budget deficit and say the government should better manage finances before resorting to debt.

“Depletion of GRF liquidity would sharply limit the government’s ability to make good on its spending obligations and could result in significant economic disruption,” Fitch said.

Fitch also said:

• Base case is that government will replenish the GRF to avoid depletion even without any new legislation by parliament, and that debt service (about 400 million dinars, or 1% of GDP in 2021) would continue in a timely manner
• Authorities have shown commitment to avoiding a liquidity crisis and have flexibility to take extraordinary measures, but the timing of a sustainable funding solution remains unclear
• Expects the general government deficit to widen to about 6.7 billion dinars (20% of GDP) in FY20
• Fiscal deficits will likely remain in the double digits in the medium to long term
• Link to Fitch statement

The Gulf Arab nation last month forecast its eighth consecutive budget deficit for the year starting April 1, unveiling a fiscal plan that sees a near 7% rise in spending. The shortfall is projected at 12.1 billion dinars ($40 billion).

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