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Kuwait under review for economic downgrade as oil prices fall

April 2, 2020 at 4:00 am

A photo shows empty surroundings of a touristic landmark of Kuwait City amid the coronavirus (COVID-19) pandemic in Kuwait on 1 April 2020. [Jaber Abdulkhaleg – Anadolu Agency]

Kuwait has been placed on review for a downgrade of their credit ratings by the agency Moody’s Investors Service, severely lowering the country’s likely ability to repay its debt.

The credit ratings firm, which sets the ratings as indicators of countries’ abilities to repay their national debt, announced on Monday that Kuwait is under review for a downgrade in its own ratings, marking further economic impact caused by a sharp fall in oil prices and the spread of the coronavirus pandemic.

READ: What does the plunge in oil prices mean for the Arab world?

Throughout the past month, an ongoing oil crisis has been ravaging global markets, starting when Saudi Arabia sharply increased its oil production resulting in oil prices dropping as low as $25 per barrel. It has even been predicted that this oil price war could bring the price down even further, to $10 per barrel.

The primary reason that the agency placed Kuwait on the review, is the government’s significant decline in revenue due to the oil crisis, with the decision reportedly based on the analysis of the country’s alternative sources of revenue and an assessment on whether it will be able to acquire sufficient funding in order to keep up with the increasing economic requirements.

Coronavirus and the oil [Cartoon/Arabi21]

Coronavirus and the oil [Cartoon/Arabi21]

Last week, Kuwait was forced to cut its oil expenditure and the small Gulf country has been economically dealing with the outbreak of the coronavirus and its impact on global markets, particularly since it has taken financial measures to support businesses within the country, and its banks have donated $32 million to combat the pandemic, as well as $10 million to help Iran with its crisis.

READ: Saudi to raise oil exports to 10.6mn barrels per day despite coronavirus crisis

It particularly struggled with its economy following the huge fiscal deficit since the previous oil price crisis in 2015, after which its General Reserve Fund shrank rapidly. The agency’s assessment of the country’s situation predicted that its further withdrawals will exhaust the General Reserve Fund before the end of the fiscal year of 2020/2021. It predicted that in the absence of further measures to control its economic situation, Kuwait will have an expected budget deficit of about 28 per cent of its GDP, estimated at $39 billion in the fiscal year 2020/2021.