Fitch Affirms Kuwait at AA- With Net Foreign Assets Seen at 668 Percent of GDP
Fitch Ratings affirmed Kuwait’s long-term issuer default ratings at AA- with a Stable outlook in a 7 August rating action, keeping the country among the highest-rated sovereigns it covers through a year of regional conflict and disrupted oil exports. The rating rests on what Fitch calls exceptionally strong fiscal and external balance sheets, anchored by sovereign net foreign assets that are the highest relative to GDP of any sovereign the agency rates, forecast to reach 668 percent of GDP in 2026 from an estimated 652 percent in 2025, more than ten times the AA median.
The affirmation is a statement about buffers. Fitch acknowledged that the US-Iran conflict remains a source of risk after the mid-July collapse of a ceasefire, with attacks having damaged strategic infrastructure and the Strait of Hormuz transit route the key vulnerability for oil exports, yet concluded that the implications for sovereign risk will remain manageable given the sovereign’s large buffers, per the commentary. Crude production, which fell about 70 percent to 0.78 million barrels a day during March to May, recovered to 1.65 million in June and about 2 million in July, and Fitch expects output to average 2 million barrels a day in the fiscal year ending March 2027 before recovering the following year, noting Kuwait’s capacity to restore production quickly once transit conditions normalise.
The balance sheet strength sits alongside a widening fiscal gap. Under the government’s reporting convention, which excludes investment income earned by the Kuwait Investment Authority, Fitch expects the budget deficit to widen by four percentage points to about 19 percent of GDP this fiscal year as the conflict weighs on revenue and the infrastructure drive continues. Current spending remains rigid, with salaries and subsidies absorbing 81 percent of expenditure and 40 percent of GDP last fiscal year, per the commentary, while the new 15 percent domestic minimum top-up tax on multinationals, expected to generate 0.5 to 0.6 percent of GDP a year, only begins collections in the first quarter of 2027.
The reported deficit is not the whole fiscal picture, though. Including its own estimate of Kuwait Investment Authority investment income, which is not officially disclosed, Fitch projects an overall fiscal surplus of 1.7 percent of GDP this fiscal year, up from 0.3 percent last year, a swing of roughly 21 percentage points against the reported convention that shows how decisively sovereign investment income shapes Kuwait’s true fiscal position. The structural gap sits on the revenue side: excluding investment income, non-oil revenue averaged 9.1 percent of non-oil GDP over the last four fiscal years, below the 10.3 percent GCC median, per the commentary.
Fitch expects most of this year’s deficit to be financed through borrowing, with the remainder drawn from the General Reserve Fund, lifting government debt from 2.9 percent of GDP in fiscal 2024 to a projected 38 percent by end fiscal 2028. Even at that level, Kuwait’s debt would remain well below the 51.5 percent median Fitch projects for AA rated sovereigns in 2028. The agency assumes Kuwait’s average oil price at 81.4 dollars a barrel this fiscal year, up 21 percent from the prior year, while the fiscal break-even oil price excluding investment income stays above 100 dollars a barrel, up from 83 dollars in fiscal 2024.
On the economy, Fitch expects GDP to contract this year, driven mainly by the decline in oil production, while non-oil activity weakens but stays positive, supported by public infrastructure spending, public sector employment and central bank support for the banking system. Inflation is expected to rise marginally in 2026 before easing in 2027. The rating remains constrained, in Fitch’s assessment, by governance scores weaker than peers, heavy dependence on oil, and a costly welfare system and large public sector that could pressure public finances over the long term despite spending rationalisation efforts.
Fitch’s rating sensitivities cut both ways. A sharp escalation of regional tensions that caused prolonged disruption to the hydrocarbon sector or its export route, or a significant deterioration in fiscal and external positions from a sustained period of low oil prices, could push the rating down. Strong evidence that Kuwait’s institutions and political system can tackle long-term fiscal challenges, together with a reduction in geopolitical risks, could lift it. Notably, Fitch’s sovereign rating model alone scores Kuwait at AA+, with the committee applying two one-notch downward adjustments, one for structural features and one for public finances, to reach AA-. Fitch also removed an additional structural notch it had previously applied, judging that the model’s lower score now captures the volatility that adjustment once covered.
Why it matters: An affirmation through a war year carries more information than an affirmation in a calm one, our reading. Fitch is effectively saying that a 70 percent production outage, damaged infrastructure and a 19 percent of GDP reported deficit are absorbable events for a balance sheet holding nearly seven times its economy in net foreign assets, which is the clearest available definition of what a sovereign buffer is for, and its broader arithmetic, a 1.7 percent surplus once investment income is counted, shows the buffer is still growing rather than merely holding. The same commentary doubles as a repair list: the rating is capped below its own model score by governance and the structure of spending, where salaries and subsidies at 81 percent of outlays leave little room to adjust, and the debt ratio’s climb from 3 to 38 percent of GDP in four years is the price of bridging the gap while those structures change slowly. The stock of wealth secures the rating; the flow of reform decides its direction.
Outlook: The variables Fitch itself flags are the ones to watch, our reading: whether transit conditions and oil production normalise into next fiscal year, how quickly the borrowing programme builds toward the projected debt path, and whether the new multinational tax lands on schedule in early 2027. The Stable outlook signals no near-term move in either direction, and the sensitivities set the bar in Fitch’s own terms: an upgrade needs strong evidence that Kuwait’s institutions and political system can tackle long-term fiscal challenges alongside reduced geopolitical risk, while prolonged disruption to hydrocarbons or a sustained fiscal deterioration would work the other way. We will track the other agencies’ scheduled reviews of Kuwait as they come.
Sources: Fitch Ratings.
