Ratings agency Moody's on Thursday changed the outlook of Kuwait's Aa2 sovereign ratings from negative to stable, after parliament passed long-awaited economic laws, the agency said. Moody's Investors Services said the decision affects the government's Aa2 foreign and local currency bond ratings and the Aa2 country ceiling for foreign currency bank deposits. “The outlook on the Aa2 country ceiling for foreign currency bonds remains stable,” it said in a statement, adding that Kuwait's local currency ceilings remain at Aa2. Moody's last assigned a negative outlook to Kuwait in June 2009, but said at the time that it would change it to stable if ties between the government and parliament improved, the statement said. “In Moody's opinion, this condition has been met,” it added. Tensions between parliament and the Kuwaiti government over the years delayed key economic laws from being voted by lawmakers but the situation changed after a new government was formed in June 2009. Since then “a number of important pieces of economic legislation have been passed by the Kuwaiti parliament,” said Tristan Cooper, Moody's chief analyst for Middle East Sovereigns. He said the new legislation included a privatization law, a four-year development plan, a capital markets law and a labor law. “Moody's believes that these laws, despite some limitations, should help to develop the country's limited private sector and attract foreign investment,” the statement said. Cooper said that Kuwait continues “to post impressive fiscal and external current account surpluses despite some adverse effects from the recent global financial crisis.” He also noted that Moody's “currently has a negative outlook for Kuwait's banking system, reflecting concerns regarding some elements of Kuwait's financial sector” including investment companies. “However, from a sovereign perspective, these weaknesses are offset by the very strong financial position of the government, which can afford to provide substantial support to Kuwait's banking sector in case of systemic difficulties,” Cooper said. “Despite deteriorating asset quality, Kuwait's commercial banks continue to have overall comfortable levels of capitalization and liquidity,” he added. A statement from Moody's on Thursday said the basis for the change was due to the Kuwaiti parliament approving some long-awaited economic legislation and its strong fiscal performance compared to its ratings peers. Moody's Investors Service said the improved outlook is due to the improved performance of the government and the country's strong fiscal performance. Moody's holds a relatively high Aa2 sovereign rating on Kuwait.
