A deficit that could reach 40% of its economy this year, and unable to borrow due to a showdown between the government and parliament, Kuwait is running out of options. The General Reserve Fund, essentially its Treasury, has been tapped so aggressively that its liquid assets could come close to being depleted within the current fiscal year. That has attention turning to its Future Generations Fund, the world’s oldest sovereign wealth fund and estimated to be the fourth-largest globally. As its name implies, the savings vehicle is meant to secure the wellbeing of future generations of Kuwaitis, who probably won’t be able to rely on oil to sustain one of the world’s most prosperous populations.
Measure being discussed is halting a mandatory annual transfer of 10% of total revenue to the FGF in years when the government runs a deficit. An amendment to the existing law may also allow transferring as much as 25% in years of surplus. Another option is taking a loan from the FGF, which would be repaid, or for the fund to buy 2.2 billion dinars ($7.2 billion) of assets owned by the Treasury, in order to boost liquidity.
The state is calling in dues and scrounging up cash where it can. In April, the Finance Ministry asked state-owned Kuwait Petroleum Corp. to transfer 7 billion dinars in dividends owed to the Treasury. Parliament’s finance committee last month also asked the KIA for its view on halting the 10% payment as well as transferring the FGF’s annual profits into general reserves. Some of the crisis is self-imposed, with lawmakers resisting efforts by the government to borrow, saying it should stop mismanaging public finances before going out to markets again. Kuwait has one of the highest credit ratings in the Middle East, and its neighbors Abu Dhabi, Qatar and Saudi Arabia sold a combined $24 billion in Eurobonds in April alone, with demand for Saudi Arabia’s $7 billion sale topping $50 billion.