Kuwait has transferred the last of its performing assets to the country’s sovereign wealth fund in exchange for cash to plug its budget deficit, after a political dispute over borrowing left one of the world’s richest nations short of cash and prompted Fitch to cut its outlook to negative. Recent warning that it would consider downgrading Kuwait in the next six to 12 months if politicians fail to overcome the impasse. Desperate to generate liquidity, the government began last year swapping its best assets for cash with the $600bn Future Generations Fund (FGF), which is meant to safeguard the Gulf Arab nation’s wealth for a time after oil. With those now gone, it’s not clear how the government will cover its eighth consecutive budget deficit, projected at KD12bn. assets include stakes in Kuwait Finance House and telecoms company Zain, a person familiar with the matter said, asking not to be named because the information is private. State-owned Kuwait Petroleum Corp., which has a nominal value of KD2.5bn ($8.3bn), was also transferred from the government’s treasury.
Kuwait is contending with the twin pressures of Covid-19 and lower oil prices. Unlike Saudi Arabia and others, however, Kuwaiti lawmakers have blocked proposals to borrow on international markets to cover the fiscal shortfall. Kuwait hasn’t returned to the market since its debut Eurobond issuance in 2017. Though nearly three-quarters of the budget is dedicated to public sector salaries and subsidies, parliamentarians have also opposed any hint of spending cuts, saying the government must reduce waste and corruption before passing the burden onto the public or resorting to debt. The FGF, meanwhile, can’t be touched without legislation, and the idea of dipping into the national savings pot is deeply unpopular. Parliament already passed a law last year exempting the government from transferring the usual 10 per cent of revenues into the FGF during years of deficit. With 80 per cent of government income based on oil, Kuwait needs crude at $90 to balance the new budget. But benchmark Brent was trading around $58 a barrel last week while spending is projected to rise 7 per cent.