Moody's issues annual report on Kuwait

The foreign currency country ceiling for bonds is Aa2, which is based on the foreign currency government bond rating of Aa3 and Moody's assessment of a low risk of payments moratorium in the event of a government bond default.

"Kuwait has been able to achieve its wealth, including wide fiscal and external current account surpluses, thanks to the fourth largest oil reserves in the world," said Moody's Assistant Vice President Kenneth Orchard, author of the report. "It is a major oil exporter while having a relatively small population of around 3 million."

For these reasons, both the public and private sectors have been able to accumulate substantial net foreign assets. Meanwhile, Kuwait enjoys close relations with the United States, which is strongly committed to protecting its sovereignty, other G8 countries, and its regional neighbours.

"However, Kuwait's ratings are constrained by a number of factors, including its high dependence on volatile oil exports and a bloated public sector, which employs over 90 percent of the labour force of Kuwaiti nationals," said Orchard. "Expatriates compose over 95% of the private sector work force."

He said the country's political, administrative and legal institutions are still developing and remain weaker than most other Aa- or Aaa-rated countries. Government effectiveness is limited by a slow legislative process and cumbersome bureaucracy.

"Although we expect the government's finances to continue to improve over time, Kuwait's ratings are likely to be constrained by political and institutional factors, which are given comparatively more weight in the Aa rating category," explained the analyst.

For example, he said, recent political posturing that led to the resignation of the government will delay passage of important legislation such as Project Kuwait, a plan to introduce foreign investment into four major northern oil fields. There also remains a risk of a negative effect on Kuwait of political developments in Iran, Iraq or the wider region.