Kuwait's approval of the draft financing and liquidity law will widen funding options and reduce the risk of liquidity pressure building up on the General Reserve Fund, Fitch Ratings said in a report.

The law's approval is expected to improve fiscal financing flexibility and remove a source of credit risk. Moreover, it also clears the way for government debt to increase from its very low level.

Fitch affirmed Kuwait's sovereign's rating at "AA-"/stable on March 7. 

However, the rating agency said that the government will be able to meet its financing needs, given the substantial assets at its disposal even without a liquidity law.

The Gulf nation's credit profile is also likely to improve if there is significant progress on other reforms, particularly measures to diversify fiscal revenue sources, rationalise expenditure and reduce the country's reliance on oil.

Crude oil accounts for about 90% of exports and 84% of government revenue, excluding investment income. 

The government has already introduced a 15% domestic minimum top-up tax on multinational companies, in line with the Organisation for Economic Co-operation and Development (OECD) requirements. 

The tax, expected to generate about 0.5% of GDP annually, came into effect from January 1, 2025. 

"We expect collections to begin in 2027," Fitch stated.

(Editing by Seban Scaria seban.scaria@lseg.com)