Fitch Affirms Kuwait at AA- With Stable Outlook, Cites Strong Buffers
Kuwait keeps its AA- rating and stable outlook, but a widening deficit and weak non-oil revenue test its buffers.
Fitch Ratings has reaffirmed Kuwait's sovereign credit grade at AA-, assigning a stable outlook. The agency pointed to exceptionally strong fiscal and external buffers. It also flagged heightened regional risks and weakening oil revenues.
Kuwait's sovereign net foreign assets are projected to reach 668% of GDP by 2026, a level that would remain among the highest of any Fitch-rated government. That figure is more than ten times the median for AA-rated sovereigns. The assets give the country a large cushion against shocks.
The fiscal picture is less comforting. Fitch expects Kuwait's budget deficit to widen to roughly 19% of GDP in the fiscal year ending March 2027. Government debt is seen climbing from 2.9% of GDP in fiscal 2024 to 38% by end-2028 — still below the projected AA median of 51.5% of GDP.
The ongoing war with Iran will weigh on economic growth, according to Fitch. The conflict is slowing Kuwait's oil output. The country's crude production is expected to average 2 million barrels per day in fiscal 2026. The rating agency based its forecast on an average oil price of $81.40 a barrel, a 21% increase over the previous fiscal year. Non-oil GDP, meanwhile, is expected to stay positive, supported by public infrastructure spending, civil service employment and central bank backing for the banking sector. Inflation is forecast to rise slightly in 2026 before cooling in 2027.
Kuwait's weakest spot remains non-oil revenue. Between fiscal 2022 and fiscal 2025, such receipts averaged 9.1% of non-oil GDP, behind the Gulf median of 10.3%. The government's budget for fiscal 2026 targets non-oil revenue of 7.2% of GDP, relying on fee increases, digitalization and a new 15% corporate top-up tax. Fitch warned that collections will likely miss that target, citing geopolitical disruptions and delays in implementing the tax until early 2027.
There are signs of near-term improvement in the private sector. Kuwait's headline purchasing managers' index climbed to 50.8 in July from 46.4 in June, crossing the 50 neutral mark for the first time in five months. It was the first expansion in business activity since the US-Iran conflict escalated in late February, helped by the resumption of regional flights. Output and new orders increased. S&P Global cautioned that business conditions remain challenging, and elevated transportation costs continue to weigh on export orders.
Kuwait's external position is not the problem. Its ability to convert oil wealth into diversified public revenue is the longer-term puzzle. The new corporate tax is a step toward that, but if implementation slips and oil prices soften, the country will lean even harder on its accumulated buffers.
