Kuwait wealth fund absorbs financial deterioration

The credit rating agency, Moody’s, noted that the exceptionally large assets of the Kuwaiti sovereign wealth fund have absorbed the significant and continuing deterioration in the government’s financial position, which has spared the country a very large increase in debt, reports Al-Rai daily.

In a report titled ‘Enhancing global commitment to the carbon transition increases credit risk in the long run’, the agency added that the speed of carbon transition paths will lead to increased credit challenges if global regulations and policies change, or investors exit the oil and gas sectors faster than expected.

Credit pressures will be particularly significant for Iraq, Kuwait and Oman, and in the longer term for Azerbaijan, Qatar, Abu Dhabi and Saudi Arabia, reports Al-Rai daily.

The countries with the strongest institutions and the largest financial buffers will be more qualified than others to reduce the risks of the transition to lowemissions economic system in the long term, including credit pressures in light of faster decarbonization, said the report.

Moody’s expected that only Kuwait and Nigeria will witness a significant financial deterioration during the current decade due to the large financial deficits of these two countries already in 2021, despite the rise in oil prices, and because of their weak ability to adapt.

However, Moody’s reported that Kuwait has the largest financial buffers, which will partially mitigate the credit effects of the transition to a low-carbon economy, at least during the first decade. On the other hand, Moody’s stated that governments that have accumulated large assets managed by sovereign wealth funds abroad will be able to use them to mitigate — at least temporarily — the impact of accelerating the carbon transition, while these assets also provide a financial resource to support economic diversification efforts, noting.