Kuwait faces one of the world’s richest countries, a crisis that may be forced to use reliance on a fund to prepare it for a future free of oil.
With a deficit of up to 40% of its economy this year and unable to borrow because of the confrontation between the government and parliament, Kuwait runs out of options. The General Reserve Fund, mainly the Bank’s treasury, has been so aggressively exploited that its liquid assets could be nearly depleted during the current fiscal year, or by April 2021.
This interest has shifted to the long run generations fund, the world’s oldest sovereign wealth fund, and is estimated to be the world’s fourth-largest fund. As its name suggests, the saving method aims to secure the well-being of future generations of Kuwaitis, who might not be ready to depend upon oil to perpetuate one in every of the world’s most prosperous populations.
One of the measures discussed is to stop the mandatory annual transfer of 10% of total revenue to FGF in the years when the government is in deficit. Amending the current law may allow up to 25% to be converted into surplus years. Another option would be to obtain a loan from the General Trust Fund, to be repaid, or to purchase the fund 2.2 billion dinars (7.2 billion dollars) of Treasury-owned assets, in order to boost liquidity.
Over the years, the government has tried to reduce spending wastage, but with the spread of economic damage from the epidemic and falling oil prices across the Gulf, Kuwait has mobilized one of the smallest fiscal adjustments among its neighbors. The ministries were asked to reduce their budgets for the current fiscal year by at least 20%.
Even when the government makes decisions – such as support for private sector allocations – most have not yet been implemented. Meanwhile, companies go bankrupt and there is no new law governing employers’ relationships with workers, who are still unable to take responsibility.
The State called on benefits and donated money where it could. In April, the finance ministry asked the state-owned Kuwaiti Petroleum Corporation to transfer 7 billion dinars of outstanding profits to the treasury. Last month, the Parliament’s Finance Committee asked the GIC to suspend the payment of 10% and transfer GFI’s annual profits to public reserves, according to a copy of the document that Bloomberg briefed.
Some crisis is self-imposed, as lawmakers resist government borrowing efforts, saying it must stop mismanaging public finances before going out again. Kuwait has one of the highest credit ratings in the Middle East, and its neighbors Abu Dhabi, Qatar, and Saudi Arabia collectively sold $24 billion in Eurobonds in April alone, with a demand for $7 billion worth of sales exceeding $50 billion.