Despite a series of shocks in oil prices, Kuwait’s sovereign wealth fund (SWF) has continued to grow its assets, according to a report from Moody’s Investor Services, although the two underlying funds have enjoyed differing economic records.
The strength of the overall fund is also in contrast to the fortunes of the government’s coffers which have recorded fiscal deficits every year since 2015. Consequently the government has been forced to draw down on one of the underlying funds – the General Reserve Fund (GRV).
While the larger Future Generations Fund enjoys a mandatory 10% of all government revenues, is segregated from the government’s budget and has continued to grow, the “large fiscal deficits since 2015 have drastically reduced the smaller GRV” stated Thaddeus Best, an analyst at Moody’s.
Furthermore, the GRV has also been the government’s sole source of deficit financing since the expiration of its public debt bill in 2017.
Despite this, Moody’s estimates that the overall SWF fund has grown in assets, but it warns that should the GRV be depleted, it would have credit implications for the sovereign. In essence, Kuwait needs to finance a likely deficit equivalent to 9% of GDP over the next few years based on current oil price forecasts.
Passing a new debt bill would enable the government to issue debt and therefore provide an alternative source of financing to the GRV but without such an arrangement, the GRV could be depleted within the next three years, the effect of which would be “very credit negative” stated Best.
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