Kuwait still one of the world’s wealthiest countries, is in a budget crunch so severe that it may have to soon begin leaning on a fund intended to prepare it for a future without oil.
Kuwait is running a deficit that could reach 40 percent 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 has been tapped so aggressively that its liquid assets could come close to being depleted within the current fiscal year, or by April 2021.
That has attention turning to its Future Generations Fund, the world’s oldest sovereign wealth fund and estimated to be the fourth-largest globally. 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.
One measure being discussed is halting a mandatory annual transfer of 10 percent 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 percent 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.
“You’re talking about a country where you have oil wealth and a sovereign fund and an educated population, you have so many things going for you,” said Abdulmajeed Al-Shatti, a Kuwait-based economic consultant who was previously chairman of the Kuwait Banking Association. “Unfortunately, we have mismanagement of fiscal policies and a lot of unnecessary subsidies.”