Two oil-rich Arab Gulf states suffered severe economic blows on Wednesday, as a major credit agency downgraded Kuwait for the first time and the United Arab Emirates acknowledged its economy would contract to a level last seen in 2009.

The agency, Moody’s Investors Service, cut Kuwait’s debt rating and sounded the alarm that its “liquid resources are nearing depletion.” With the government failing to pass a public debt law, Kuwait has drawn from its reserve fund to keep spending — at a pace that could prove unsustainable. Moody’s warned that government “gridlock” and ineffective debt management would erode Kuwait’s financial strength in the years ahead.

Even if Kuwait managed to push through a debt law without a ceiling, Moody’s projects that some $90 billion would still be needed to plug the funding gap until 2024. Despite growing “liquidity risks,” Kuwait’s government has not sought access to its sovereign wealth fund, one of the largest in the world, intended as a fortune for future generations after the oil runs out.

Meanwhile, the UAE’s Central Bank reported the country saw a “significant decline in economic activity” as a result of its COVID-19 lockdown, one of the strictest in the world. Virus-induced restrictions closed borders, grounded flights, shuttered businesses and disrupted global supply chains — upending the economic foundation of the region’s “trade, tourism and transportation hub,” the bank’s quarterly review said.

The UAE’s gross domestic product for the year is expected to shrink 5.2%, the bank said, worse than even the 3.5% drop that the International Monetary Fund predicted. It’s the steepest decline since 2009, when the global financial crisis plunged the country’s economy into a lingering recession.

Even as the oil-rich federation of seven sheikhdoms tries to diversify its economy, its non-oil GDP contracted 9.3% in the second quarter of the year, compared to 2.7% in the previous quarter.

The UAE has largely reopened for business, trying shake off the effects of the lockdown. But with an economy dependent on petrodollars, the country continues to face the threat of declining oil prices.

(AP)