Kuwait's ample hydrocarbon assets will also provide a buffer allowing its public finances to withstand the impact of lower oil prices, said an industry expert.

"Kuwait's government revenues are sensitive to oil price movements, because oil revenues account for about 80 per cent of total revenues. But we still expect the government to register small fiscal surpluses of around 1.8 per cent of GDP this fiscal year and next given Kuwait's low fiscal breakeven oil price," added Steffen Dyck, a vice president -- senior analyst at Moody’s Investors Service, a global credit rating agency.

Dyck was commenting Moody's new report entitled "Kuwait, Government of" which explains that despite the prospects of a delayed oil price recovery, Kuwait's very high levels of economic and fiscal strength will continue to support the country's credit profile and its Aa2 rating with a stable outlook in 2015 and 2016.

Moody's expects that oil prices will start a gradual recovery in 2017. It projects that the price of Brent crude will average $55 per barrel this year and $57 per barrel the following year.

Given the oil sector's importance to the Kuwaiti economy, the agency expects a sizable contraction in nominal GDP in 2015 and only a small recovery in 2016. On the other hand, while real GDP will only grow at a projected average rate of 1.5 per cent in 2015-16, this will mark a recovery from a 1.6 per cent contraction in 2014.

"We forecast that the Kuwaiti government's nominal debt level will remain broadly unchanged throughout 2015-16, because our oil price assumptions point to continued fiscal surpluses,” said Dyck.

According to Moody's, Kuwait's debt level was 6.5 per cent of GDP at end-2014. However, owing to the projected contraction in nominal GDP, the government debt-to-GDP ratio will rise to a still very low level of around 8.5 per cent in 2015-16.

The government is also exploring revenue-enhancing measures such as corporate and income taxes, although based on the government's announced plans Moody's does not expect large reforms over the coming 12 months.

Instead it expects the focus to remain on increasing the overall revenue collection efficiency and re-pricing certain government service fees.
Moody's views unilateral introduction of value-added tax without GCC-wide coordination as highly unlikely.

Moody's notes Kuwait's vulnerability to regional geopolitical developments, which exposes the country to moderate overall event risk. – TradeArabia News Service