UPDATE 1-Kuwait's AA rating threatened by political protests-Fitch
By Daniel Bases
NEW YORK Oct 29 (Reuters) - Fitch Ratings put Kuwait on warning that a further escalation of political protests there could put its AA sovereign credit rating under pressure for a downgrade despite the nation's strong balance sheet.
On Monday, the credit rating firm said recent popular protests over a change in the election law decreed by the ruling emir "suggests a radicalisation of the political scene".
"Prolonged political stalemate could also undermine Kuwait's rating through its impact on the economy," Fitch said in a statement. The rating has a stable outlook.
Sheikh Sabah al-Ahmad al-Sabah dissolved parliament in early October to pave the way for a new election which many hoped would end a persistent political turmoil that had held up development projects in the major oil producer and U.S. ally.
The move by the emir on Oct 19, condemned by opposition political leaders who won a parliamentary majority in a February poll, was seen as an attempt to undermine their chances ahead of the Dec. 1 vote.
The crisis escalated in June this year when the nation's top court annulled the last election which had been held in February, reinstating the previous, more government-friendly assembly.
Opposition lawmakers feared authorities would try to push through new voting rules that could help pro-government candidates.
OPEC producer Kuwait's oil wealth and a generous welfare state have helped it avoid the kind of "Arab Spring" protests that toppled leaders elsewhere in the region, but the ruling Al Sabah family is facing an unprecedented challenge to its authority.
"Kuwait's sovereign external balance sheet is the strongest of all Fitch-rated countries and means the country's 'AA' sovereign rating can endure further political instability. However, a serious escalation of public unrest could threaten the rating. Much will depend on how the authorities respond, and whether large-scale violence is avoided," Fitch said.
Last week the government banned gatherings of more than 20 people and gave police more powers to disperse protests, according to a cabinet statement carried by local newspapers.
This follows the use of tear gas, stun grenades and smoke bombs by police against thousands of demonstrators who marched in downtown Kuwait City on Oct. 21.
Kuwait's rating is underpinned by its strong sovereign and external balance sheet, Fitch said, citing estimated net foreign assets of $323 billion at the end of last year. That is equivalent to 191 percent of gross domestic product.
Standard & Poor's rates Kuwait's sovereign credit at AA while Moody's Investors Service has an equivalent Aa2 rating. Both have stable outlooks on the credit.
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