Moody's placed the issuer ratings of Kuwait and Oman on review for downgrade to reflect growing external pressures and government liquidity risks following the drop in oil prices amid the coronavirus outbreak.
The rating agency placed on review Kuwait's Aa2 long-term issuer rating, citing a significant decline in government revenues due to lower oil prices along with weak governance. This has led to increased uncertainty over the government's ability to access sufficient sources of financing as Kuwait's government revenue base is almost entirely reliant on oil.
In the absence of more significant fiscal consolidation measures, Moody's projects Kuwait's budget deficit to come in at 28% of GDP for fiscal year 2020-2021.
Moody's also placed Oman's Ba2 issuer rating on review for downgrade, citing the country's increased external vulnerability and government liquidity risks after a significant slump in oil prices and the severe tightening in external financing conditions. The review placement comes less than a month after Moody's downgraded Oman's ratings from Ba1.
The rating agency lowered its oil price assumptions for 2020 and 2021 to an average of $43 per barrel and $53 per barrel, respectively. Based on this assumption, Moody's now expects Oman's fiscal deficit to increase to nearly 14% of GDP in 2020, compared to 7.7% of GDP in 2019.
Oman's weak institutional and governance strength over the past four years have delayed fiscal and economic adjustment to lower oil prices, leaving the country exposed to further and more durable shocks, Moody's said.