Fitch Affirms Kuwait’s AA- Rating on Strong External Assets

RIYADH: Kuwait retained its AA- sovereign credit rating with a Stable Outlook from Fitch Ratings, which cited exceptionally strong fiscal and external balance sheets despite rising regional geopolitical risks. 

The rating agency said Kuwait’s vast sovereign wealth assets and external buffers remain among the strongest of any Fitch-rated sovereign, although heavy dependence on oil, a costly welfare system, a large public sector, and relatively weaker governance continue to constrain the rating. 

The collapse of a ceasefire between the US and Iran in mid-July has kept the conflict a live risk to Kuwait’s creditworthiness, with attacks damaging strategic infrastructure and disrupting transit conditions. 

The assessment comes as the International Monetary Fund projects Kuwait’s fiscal deficit will widen to 8.7 percent of gross domestic product in fiscal year 2025/26 and 9.4 percent in fiscal year 2026/27, reflecting higher government spending and lower oil revenues. The fund expects real GDP growth of 3.8 percent in 2026, driven by the unwinding of OPEC+ production cuts and resilient non-oil activity, while the current account surplus is forecast to moderate to 19.6 percent of GDP. 

In its latest assessment, the agency said: “Kuwait’s ‘AA-’ rating is supported by its exceptionally strong fiscal and external balance sheets, with sovereign net foreign assets relative to GDP the highest among all Fitch-rated sovereigns.”   

Oil export risks remain central 

Fitch said the conflict continues to weigh on Kuwait’s ability to export crude, given its reliance on the Strait of Hormuz. Oil production fell 70 percent, to 0.78 million barrels per day, between March and May before recovering to 1.65 million bpd in June and around 2 million bpd in July. 

The agency expects Kuwait’s crude production to average around 2 million bpd for the fiscal year ending March 2027, with a fuller recovery the following year. It also forecast Kuwait’s average oil price at $81.4 per barrel for fiscal year 2026, up 21 percent from fiscal year 2025, even as the fiscal break-even price remains above $100 per barrel. 

Deficit set to widen 

Under the government’s own reporting convention, which excludes Fitch’s estimate of Kuwait Investment Authority investment income, the agency said: “We expect the deficit to widen by 4 percentage points to about 19 percent of GDP in FY26 as the war weighs on revenue and the government maintains its infrastructure drive, although capex execution will be weaker than budgeted amid heightened security risks.” 

Salaries and subsidies accounted for 81 percent of Kuwait’s spending and 40 percent of GDP in FY2025, while Fitch expects progress on subsidy reform to remain limited despite the budget assuming a reduction in subsidies. However, after including estimated investment income from the Kuwait Investment Authority, Fitch projects that Kuwait will record an overall fiscal surplus of 1.7 percent of GDP in FY2026, up from 0.3 percent in FY2025. 

External assets still dwarf peers 

Fitch forecasts Kuwait’s sovereign net foreign assets will rise to 668 percent of GDP in 2026, from an estimated 652 percent in 2025, more than 10 times the median for AA-rated sovereigns. Most of these assets are held in the Future Generations Fund managed by the Kuwait Investment Authority. 

Government debt, meanwhile, is expected to climb from 2.9 percent of GDP in fiscal year 2024 to 38 percent by the end of fiscal year 2028, though this would still remain below the projected 2028 AA median of 51.5 percent. 

Outlook 

Fitch said a further escalation of the Iran conflict or a prolonged disruption to Kuwait’s oil exports could pressure the rating downward, while credible evidence that Kuwait’s institutions can tackle long-term fiscal challenges, alongside reduced geopolitical risk, could support an upgrade.