Kuwait seeks approval to use wealth fund to finance deficit

Kuwait’s government submitted a draft law to parliament seeking permission to withdraw as much as KD5bn ($16.5bn) a year from the country’s sovereign wealth fund to help finance a spiraling deficit.

If approved by lawmakers, it would be the first time since the aftermath of the Gulf War in 1990 that Kuwait had extracted funds from the $600bn Future Generations Fund (FGF). Previous withdrawals were treated as loans and had to be repaid.

The government’s also attempting to push through parliament legislation allowing it to tap international bond markets, and wants to plug its monthly shortfall using both cash and debt, according to two people familiar with the matter who aren’t authorised to speak publicly.

The Future Generations Fund is managed by the Kuwait Investment Authority and is designed to safeguard the Gulf Arab nation’s wealth for when it can no longer depend on oil income. Lower oil prices, compounded by the pandemic, have battered Kuwait’s finances.

The government has transferred the treasury’s final performing assets to the FGF in exchange for cash to help service the deficit, estimated at KD12bn ($39.7bn) in the fiscal year starting April 1.

Parliament won’t be able to review the bill until it reconvenes. Kuwait’s ruler, Sheikh Nawaf Al-Ahmed Al-Jaber Al-Sabah, suspended the assembly for a month from February 18 after weeks of acrimony between the government and newly elected lawmakers. The previous parliament blocked passage of the debt law.

The legislation seeking to deploy the sovereign wealth fund cites economic circumstances “expected to go on for many years,” according to a copy widely circulated on social media, with the government needing to lower expenses and increase revenues while diversifying income.

Fitch Ratings this month affirmed Kuwait’s AA rating but said “the imminent depletion of liquid assets” and a lack of parliamentary approval for the government to borrow was creating uncertainty. S&P Global Ratings warned recently it would consider downgrading Kuwait in the next six to 12 months if politicians fail to overcome the impasse.

Lawmakers have opposed any hint of spending cuts, particularly those that may affect citizens’ income. Instead, they’ve called on the government to reduce waste and corruption before passing the burden to the public or resorting to debt.

The FGF, which invests abroad, can’t be touched without legislation, and the idea of dipping into the national savings pot is deeply unpopular. Parliament passed a law last year exempting the government from transferring the usual 10 per cent of revenues into the FGF during years of deficit.