Fitch has simultaneously affirmed Kuwait’s Country Ceiling at "AA+" and short-term foreign currency rating at "F1+".

“Kuwait’s ‘AA’ rating reflects its strong sovereign and external balance sheets that will continue to strengthen, even if oil prices fall from their current high,” says Arnaud Louis, associate director in Fitch’s sovereign team.

“However, the high reliance of the Kuwait economy on oil increases volatility and risk, despite the mitigation afforded by large financial assets. Success in diversifying the economy and developing the private sector would be positive for the ratings.”

Kuwait’s public finances are very strong. Thanks to oil revenues, the country has recorded double-digit fiscal surpluses in every year since 1999.

Fitch estimates a budget surplus of 21 percent of GDP in 2010-2011 and forecasts a similar figure up to 2013, despite the expansionary budget for 2011-2012.

Public debt was just seven percent of GDP at end-2010, most of it domestic, managed by the Central Bank of Kuwait as a tool to regulate domestic liquidity.

The sovereign external balance sheet is the strongest of any country rated by Fitch.

Fitch estimates that the sovereign net foreign asset position was $304 billion, or 225 percent of GDP, at end-2010, stronger than either Abu Dhabi or Saudi Arabia and set to increase.

Fitch forecasts growth to remain at 4 percent to 5 percent during 2011-2013, boosted by the Development Plan (DP) worth 80 percent of GDP over four years.

The DP is targeted at diversifying the economy away from oil and developing the private sector. Delays in implementing the DP, in particular due to a lack of political agreement on its execution, are the main downside risk to the growth forecast.

Banks’ asset quality improved in 2010 but exposure to risky sectors is still high.

The non-performing loan ratio dropped to 8.9 percent (from 11.5 percent in 2009).

Fitch expects banks’ lending to the private sector to recover from 2011, but to remain subdued.

The recovery in the economy, combined with a tightening in regulation should contribute to a gradual improvement in the domestic operating environment in the coming years.