"The Shawal": Kuwait's economic problem is not a lack of resources, but how they are used
The weekly report by Al-Shal Consulting stated that on August 7, Fitch Ratings issued its report on Kuwait’s sovereign credit rating, affirming the rating at “AA-” with a stable outlook.
Al-Shal noted that, consistent with its previous reports, the rating outcome brought no new developments. Kuwait continues to benefit from strong financial buffers and a robust external position, which are the two main factors supporting the rating. However, structural weaknesses in the Kuwaiti economy remain, foremost among them its heavy reliance on oil and the sensitivity of public finances to fluctuations in oil production and prices.
The report highlighted that Kuwait’s strong financial and external position continues to provide ample space to absorb the repercussions of geopolitical tensions. Fitch expects that any potential impacts will remain within manageable levels, citing Kuwait’s substantial financial assets. The agency also projects that Kuwait’s net foreign sovereign assets as a percentage of GDP will rise in 2026 to a level exceeding ten times the average for countries with an “AA” rating.
In its detailed analysis, Al-Shal reiterated that strong financial buffers do not imply that structural imbalances have been resolved; rather, they provide more time before these imbalances become more costly.
The report continues to link Kuwait’s economic outlook to changes in oil production, anticipating that overall economic growth will be affected by geopolitical developments and shifts in oil output levels. Meanwhile, non-oil economic growth is expected to continue, albeit at a slower pace.
On the other hand, Al-Shal stated that Fitch expects the ratio of public debt to GDP to continue rising over the next three fiscal years, up to the 2028/2029 fiscal year. Nevertheless, it will remain significantly lower than the average for “AA”-rated countries, which stands at approximately 51.5% of the projected 2028 GDP.
Here lies the paradox: a low level of public debt does not, in itself, address financial imbalances; it merely grants public finances greater capacity to finance deficits.
If the use of this financing capacity is not accompanied by genuine reforms to the structure of public finances, particularly in expenditure, debt will transform from a tool for providing liquidity into a mechanism for delaying the resolution of imbalances. The continued strength of Kuwait’s external position remains the most evident factor explaining the rating’s resilience.
Fitch affirmed that Kuwait’s net foreign sovereign assets will remain at exceptional levels compared to similarly rated countries, providing public finances and the Kuwaiti economy with a significant margin of safety against shocks.
The agency also expects that government spending on infrastructure development projects will support non-oil economic growth, albeit at a slower pace. Additionally, it anticipates a slight increase in the inflation rate during 2026, followed by a decline in 2027.
In conclusion, Fitch’s new report does not provide justification for interpreting the stable rating as an improvement in the fundamentals of the Kuwaiti economy.
What fundamentally supports the rating is the continued strength of financial buffers and the external position, wealth accumulated during periods of oil market prosperity, while public finances and the real economy remain highly dependent on oil.
Al-Shal emphasized that the problem in the Kuwaiti economy is not a lack of financial resources, but rather how they are used and the ability of public administration to convert those resources into sustainable reforms for the economy’s drivers. Financial buffers can buy time, but they cannot buy reform.
