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Kuwait plans to use Sovereign Wealth Fund to reduce the budget deficit

The Kuwait government submitted a draft law to the parliament for getting permission to withdraw money from The Future Generations Fund.

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According to two sources familiar with the matter, the Kuwaiti government has proposed a draft law to the parliament to obtain authority to draw approximately $17 billion from the country’s sovereign wealth fund to cover the budget deficit. The Future Generations Fund was established as an assurance for Kuwait’s future for a post-oil era. The $600 billion Fund is managed by the Kuwait Investment Authority. If the draft law is approved by the parliament, it will be the first time since the Gulf War in 1990 that Kuwait withdraws money from the Future Generations Fund.

Also, the government plans to put pressure on the parliament to get permission to enter into international bond markets, the sources added. They also stated that the government plans to manage the deficit with both cash and debt. The government has already transferred its final performing assets to the Future Generations Fund in exchange for cash to cover the deficit.

Kuwait has already worked on a debt law that caused a weeks-long discussion within the parliament. The aforementioned bill was blocked by the previous parliament, as well. Upon the everlasting debates on the debt law, Kuwait’s ruler, Sheikh Nawaf Al-Ahmed Al-Jaber Al-Sabah, has prologued the assembly for a month starting from February 18. Therefore, the draft law will not be reviewed until the parliament reconvenes.

The Kuwaiti economy has already suffered because of the lower oil prices and economic stagnation by the pandemic. International credit rating agencies are concerned about the situation of the Kuwait economy. Although Fitch Ratings confirm Kuwait’s note as AA, the institution highlighted that the possibility of depletion of liquid assets and absence of parliamentary approval to borrow creates uncertainty. S&P Global Ratings, on the other hand, has stated recently that if the political situation continues in this way, this will cause possible downgrading in Kuwait’s note.

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