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RIYADH: Fitch Ratings has affirmed Kuwait’s long-term foreign-currency issuer default rating at AA- with a stable outlook, citing the country’s strong fiscal and external balance sheets. 

The rating is supported by Kuwait’s substantial financial buffers, which the Kuwait Investment Authority manages. Yet Fitch warned that reliance on hydrocarbons, an oversized public sector, and governance scores that lag peers remain key risks. 

Public wages and subsidies account for 41 percent of gross domestic product, or 81 percent of government spending. 

The agency said Kuwait’s external balance sheet remains the strongest among all Fitch-rated sovereigns. “We forecast its sovereign net foreign assets will rise to 607 percent of GDP in 2025, from an estimated 576 percent in 2024, more than 10x the ‘AA’ median,” Fitch said.

“Prospects remain uncertain for meaningful structural reforms to reduce reliance on oil revenue,” even as the government proceeds with gradual spending rationalization and other reform measures, Fitch’s latest rating said.

The government recently enacted a long-delayed financing law that allows debt issuance for the first time since 2017. The legislation sets a borrowing cap of 30 billion Kuwaiti dinars ($98.1 billion) over 50 years. 

Since June, authorities have issued 1.2 billion dinars in domestic bonds, equivalent to 2.4 percent of GDP, easing pressure on the General Reserve Fund and supporting local capital market development. 

Nonetheless, Kuwait’s progress in diversifying its revenue base remains limited. Non-oil revenue continues to lag behind regional peers, averaging 8 percent of non-oil GDP between 2022 and 2024, compared to a Gulf Cooperation Council median of 10.2 percent. 

A 15 percent domestic minimum tax on multinational corporations came into effect in January, but the introduction of a value-added tax and the long-planned GCC excise tax appears unlikely in the near term. 

Fitch projects a reported budget deficit of 5.6 percent of GDP in fiscal year 2025 under the government’s methodology, which excludes investment income, compared to 2 percent the previous year. 

This widening gap is attributed to declining oil revenue and an uptick in capital expenditures. Including estimated returns from sovereign wealth fund investments, Fitch forecasts a budget surplus of 10 percent of GDP. 

Economic growth is expected to rebound modestly, with real GDP projected to grow by 1.7 percent in 2025, following two consecutive years of contraction due to OPEC+ production limits. 

Inflation is forecast to remain below 3 percent through 2027. Oil production is anticipated to increase gradually, but Kuwait’s fiscal break-even oil price is set to remain high at $81 per barrel in fiscal year 2025. 

Despite the resumption of borrowing, Kuwait’s debt levels remain low by international standards. 

Government debt is forecast to rise from 2.9 percent of GDP in 2024 to nearly 12 percent by 2027, still well below the AA median of 52.4 percent. 

However, Fitch warned of Kuwait’s heightened sensitivity to oil price volatility, estimating that a $10 shift in oil prices would impact the budget balance by approximately 4 percent of GDP. 

While Fitch’s Sovereign Rating Model assigns Kuwait a score equivalent to AAA, qualitative adjustments have lowered the final rating due to limited structural reform progress and persistent reliance on oil revenues. 

Kuwait’s governance performance also contributed to the rating constraints, with a World Bank Governance Indicator ranking of 54, reflecting low scores in voice and accountability and middling scores across other dimensions. 

Fitch said a rating downgrade could result from geopolitical instability or a sustained decline in fiscal and external metrics, particularly under prolonged low oil prices. Conversely, a sustained reduction in oil dependence through credible structural reforms could support a future upgrade. 

The country ceiling remains at AA+, two notches above the sovereign rating, reflecting a low likelihood of restrictions on capital flows or foreign currency transactions. 

Regional context 

Across the Gulf, ratings remain mixed. The UAE holds AA ratings from all three major agencies, supported by diversified revenue streams and sovereign assets. ����ֱ�� was upgraded by S&P to A+ in March, while Moody’s maintains an Aa3 rating. Qatar also retains AA/Aa2 ratings with stable outlooks. 

Bahrain, however, remains below investment grade, with B+ ratings from Fitch and S&P and B2 from Moody’s, reflecting ongoing fiscal and external vulnerabilities. 

RIYADH: ����ֱ�� has a large market opportunity for residential mortgage-backed securities, anchored by $180 billion in home loans and a well-capitalized, profitable banking sector, says S&P Global Ratings.
The launch of the first RMBS deal in August by state-owned Saudi Real Estate Refinance Co., or SRC, follows a surge in mortgage lending, a trend driven by the government's housing push under its Vision 2030 reform plan.
The effort comes as authorities aim to increase the national homeownership rate to 70 percent by 2030, a goal that is fueling robust mortgage demand and significant expansion of bank balance sheets.
S&P’s new note, published as a Credit FAQ rather than a rating action, outlines why momentum is building and what investors will scrutinize, from legal isolation of assets and servicing arrangements to deal mechanics, as RMBS begin to take shape.
“The market opportunity is substantial, in our view, as Saudi banks currently hold a mortgage portfolio valued at approximately $180 billion, representing 23 percent of the total loans in the banking sector, at the end of 2024,” S&P said.
The agency also noted the Kingdom’s strong banking sector capitalization, with a regulatory capital ratio of 19.6 percent as of Dec. 31, 2024.
“We note that the contribution of hybrid instruments has been increasing over the past few years, though. Banks display good asset quality indicators, they are profitable, and their funding profile remains healthy,” S&P added.
The call comes alongside S&P’s A+ stable sovereign rating and a 3.5 percent medium-term gross domestic product growth outlook, which together underpin investor appetite.
By the end of the second quarter, total real estate loans reached SR932.8 billion ($248.7 billion), with loans to individuals making up about 76 percent of the total, according to data from the Saudi Central Bank, or SAMA. This figure includes commercial real estate loans as well, while the $180 billion estimate reflects the residential segment alone.
Retail real estate loans have climbed over 550 percent since 2016, SAMA data shows. While this surge signals robust, policy-driven housing demand, it has also tightened liquidity, prompting banks to look beyond deposits and plain-vanilla debt for funding.
The securitization channel S&P highlights focuses solely on packaging home loans, not offices or malls. Expanding mortgage finance is now seen as critical to achieving Vision 2030’s goal, while securitization offers a repeatable, domestic mechanism to channel long-term funds into the mortgage market.
To address this, policymakers established SRC to buy and refinance mortgages, clearing the path for a secondary market and, eventually, securitization.
That moment arrived in August, when SRC launched the Kingdom’s first RMBS transaction, following SAMA’s no-objection approval on Aug. 21.
Housing Minister Majid Al-Hogail, SRC’s board chair, called the debut “a strategic step toward developing ����ֱ��’s real estate finance market and enhancing its appeal to both domestic and foreign investors,” adding that it would improve liquidity, broaden the investor base, and help lenders manage capital and risk more efficiently.
In parallel, recent policy changes — most notably the new foreign-ownership law set to take effect in January 2026 — are expected to widen the potential investor universe.
Elias Abou Samra, CEO of Rafal Real Estate Development, said packaging home loans into standardized, investable securities will broaden the investor base and deepen liquidity, especially as foreign participation opens up.
He noted that “inquiries from international investors rose tremendously” after the law was announced, and expects these shifts to lift demand for asset-backed instruments while improving transparency, efficiency, and global integration in the market.
SRC framed securitization as opening “attractive investment opportunities in high-credit-quality assets with medium-term maturities,” positioning RMBS as a new asset class that deepens capital markets and diversifies instruments available to local and international buyers.
S&P described the debut as a milestone that “could potentially pave the way for further issuances,” particularly as legal standards solidify and investors gain confidence in deal performance.
For banks, securitization provides headroom to recycle capital into fresh lending, diversify funding, and attract new types of investors, thereby deepening ����ֱ��’s capital markets. Even a modest share of the $180 billion residential mortgage pool converted into RMBS would create sizeable opportunities for both local and foreign buyers.

What are RMBS
Simply put, securitization groups together similar loans — such as home mortgages, auto loans, or corporate receivables — and turns that pool into tradable asset-backed securities that investors can buy. The borrowers’ monthly payments are then used to pay interest and principal on those securities.
To protect investors, the originating lender typically sells the loans to a separate legal entity called a special purpose vehicle in a true-sale transaction. This isolates the assets from the lender’s financial troubles, so the bonds are evaluated mainly on the quality of the loan pool and the structure of the deal, rather than the bank’s balance sheet.
Deals often include layers of protection — for example, senior and junior tranches — ensuring the safest bonds are paid first.
The August transaction in ����ֱ�� is an RMBS, meaning bonds supported by home loans to individuals. By turning thousands of ordinary home loans into tradable bonds, lenders can recycle capital into new mortgages, while investors gain access to asset-backed cash flows at varying risk and return levels.

What it is not — yet
Loans tied to companies or income-producing properties, such as offices, malls, or warehouses, are generally packaged as asset-backed securities backed by corporate receivables or as commercial mortgage-backed securities.
Because ����ֱ�� has few securitization precedents, the legal and regulatory framework remains a key factor. S&P noted historical uncertainty around the insolvency remoteness of issuing vehicles, which has slowed development. However, “feedback from the market indicates some progress,” and greater clarity is anticipated.
S&P expects case-by-case assessments, supported by third-party legal opinions, with regulators playing an active role in shaping a framework attractive to international investors. The stability of the Saudi riyal should also support investor confidence.
The rating approach will largely mirror developed RMBS markets, with benchmarking to peers until local performance histories deepen. The analysis spans the credit quality of the loans, legal and regulatory risks, operational and administrative risks, counterparty exposures, and cash-flow mechanics.
If SRC’s debut prices smoothly and performs as expected, S&P says it could pave the way for follow-on issuances, deepen domestic capital markets, and provide banks with a reliable channel to match-fund long-term mortgages, reducing reliance on deposits. 
The August deal is just the beginning; if the legal framework and data standardization continue to improve, RMBS could become a regular funding tool and, later, open the door for other Saudi asset classes to follow.