MENAFN - Arab Times
Rater Fitch warns Kuwait of unrest downgrade
(MENAFN - Arab Times) The ratings agency Fitch warned on Monday that a surge in public unrest in Kuwait could threaten the country's solid sovereign rating.
"Recent popular protests suggest a radicalisation of the political scene in Kuwait," Fitch analyst Paul Gamble wrote, while noting that the country's external balance "is the strongest of all Fitch-rated countries."
That meant the country's "AA" sovereign rating, the second-highest rating by Fitch, would withstand additional instability, Gamble said.
"However, a serious escalation of public unrest could threaten the rating. Much will depend on how the authorities respond, and whether large-scale violence is avoided," he added.
Over the weekend, 100 protesters were hurt in weekend clashes with police in Kuwait as the demonstrators defended the "universal right" to freedom of assembly.
Riot police used rubber bullets, tear gas and stun grenades and beat hundreds of demonstrators to break up the protest, which the opposition described as the largest demonstration in the Gulf state's history.
The Kuwaiti opposition said on Monday that it would push ahead with protests until the government meets its demands for reform.
The political crisis was sparked by a decision by the country's ruler to amend the electoral constituency law ahead of December elections.
The opposition says the amendments are aimed at electing a rubber-stamp parliament.
Fitch estimated that "longstanding political grievances are unlikely to be resolved by the December elections, which opposition MPs and supporters are threatening to boycott."
It noted that a political stalemate could damage the Kuwaiti economy, with potential disruptions to the extensive public sector threatening execution of government projects and a 2010-2014 Development Plan.
If, however, Kuwait "manages to resolve the current stalemate it would confirm one of its ratings strengths compared with its regional peers," Fitch concluded.
Standard & Poor's rates Kuwait's sovereign credit at AA while Moody's Investors Service has an equivalent Aa2 rating. Both have stable outlooks on the credit.
Following is the full text of the Fitch statement:
"Recent popular protests suggest a radicalisation of the political scene in Kuwait, Fitch Ratings says. Kuwait's sovereign external balance sheet is the strongest of all Fitch-rated countries and means the country's 'AA' sovereign rating can endure further political instability. However, a serious escalation of public unrest could threaten the rating. Much will depend on how the authorities respond, and whether large-scale violence is avoided.
"An Emiri decree to change the electoral law in a way that is expected to weaken anti-government representation in parliament at the upcoming December elections has triggered rare large-scale street protests and unprecedented public criticism of the ruling family. The authorities' response, including the use of tear gas and the number of arrests, has surprised observers.
"Measures to ban large public demonstrations and strengthen the powers of police helped avert protests planned over the past few days. Nonetheless, longstanding political grievances are unlikely to be resolved by the December elections, which opposition MPs and supporters are threatening to boycott.
"Prolonged political stalemate could also undermine Kuwait's rating through its impact on the economy. The public sector is a key engine of the Kuwaiti economy (80% of Kuwaiti nationals work in the public sector) and the development of the private sector is limited. Execution of government projects and the 2010-2014 Development Plan has been hindered severely due to difficulties in reaching agreement at the political level.
"Conversely, if Kuwait manages to resolve the current stalemate it would confirm one of its ratings strengths compared with its regional peers. We believe Kuwait's relatively open political institutions, where the executive is appointed by the unelected Emir and held to account by an elected parliament, reduce the risk of major civil unrest, and this is factored into our rating. World Bank indicators for Voice and Accountability are better than other Gulf Cooperation Council countries.
"The pillar of Kuwait's rating is its strong sovereign and external balance sheet; sovereign net foreign assets are estimated by Fitch at 323bn at the end of 2011 (equivalent to 191% of GDP). Kuwait's strong external position and public finances are a result of double-digit budget surpluses recorded every year since 1999 stemming from receipts from the country's substantial oil reserves (6.1% of total world proven oil reserves). Fitch projects oil production levels and prices will remain at a level that ensures continuing high budget surpluses (27% of GDP expected in FY12/13 and 22% in FY13/14, after 31% in FY11/12). As a result, sovereign net foreign assets will continue to grow over the rating horizon, enhancing the economy's capacity to deal with economic shocks."
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