RPT-Fitch: Kuwait court ruling may cause short-term delay to reforms

Tue Jun 18, 2013 7:16am EDT

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June 18 (Reuters) - (The following statement was released by the rating agency)

Some short-term delay in public investment and economic reform may result from Sunday's ruling by the Kuwaiti constitutional court and the consequent dissolution of the government-friendly parliament, Fitch Ratings says. However, the approval of the change in the electoral law to one person-one vote means that the next parliament should remain relatively cooperative - and continue to work with the executive to implement key reforms and projects, as has been the case so far in 2013.

The Emir had previously changed the electoral law by decree before new elections were held at the end of 2012. This followed a turbulent political year that saw the dissolution in June of a parliament that was largely hostile to the appointed government. The parliament that resulted from the December elections was more pro-government, and passed a number of long-awaited laws - such as the new Company Act to modernize the business environment, in addition to populist measures such as a consumer debt bailout. Importantly, legislation passed by the current parliament is expected to stand after its dissolution. The government was also able to push through a number of projects, such as the awards of two major infrastructure contracts (the Al-Zour power and water plant and the Subiya causeway).

Sunday's court ruling means that the current parliament will now be dissolved and new elections held. The resulting political uncertainty could delay additional reforms and public investment, but this should be short-lived as elections must be held within two months of the dissolution. The outcome of the election will depend partly on the participation of opposition politicians that had boycotted the previous poll. However, the constitutional court's approval of the one person-one vote system means opposition representation will probably be smaller than in early 2012, and the upcoming parliament will therefore probably remain relatively government friendly.

In the medium term, Fitch expects progress in modernizing and diversifying the economy to remain hampered by weaknesses in government effectiveness relative to Kuwait's 'AA' rated peers. Kuwaiti politics has always stood apart in the Gulf Cooperation Council (GCC) countries. Disagreements between the elected parliament and the appointed government have affected the ability to implement reforms and modernize the economy. On the other hand, Kuwait's relatively open institutions, including higher voice and accountability (as measured by the World Bank indicators) than its GCC peers, are a key rating strength. Sunday's ruling by the constitutional court testifies to the independence of the judicial system.

Kuwait's constitutional court ruled on Sunday that the current National Assembly was not valid due to the unconstitutionality of the establishment of the electoral committee that oversaw the last elections. However, it approved the new electoral law passed by decree in 2012, changing the number of votes per person from four to one.

We rate Kuwait 'AA' with a Stable Outlook.

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