Ratings agency Moody's has affirmed Kuwait's credit rating at "A1" with a stable outlook on strong balance sheet and fiscal buffers.

The rating affirmation reflects Kuwait's macroeconomic and external stability. However, the lack of progress in reforms would reduce the vulnerability of the economy and government finances to oil market volatility and long-term carbon transition risks.

The rating agency confirmed that progress in economic and fiscal diversification away from hydrocarbons is not currently factored into its baseline assumptions, which may reduce Kuwait's exposure to oil price fluctuations and long-term carbon transition.

The recent dissolution of parliament and temporary suspension of related constitutional articles aimed at overcoming institutional constraints has the potential to accelerate reforms, Moody's said.

By contrast, increasing global momentum towards carbon transition that significantly lowers the demand for and price of oil would likely weigh on Kuwait's credit metrics and weaken the credit profile without fiscal and economic reforms.        

(Editing by Brinda Darasha; brinda.darasha@lseg.com)