Kuwaiti parliamentarians participate in a parliamentary session at the national assembly in Kuwait City on 5 January.
Photographer: Yasser Al-Zayyat / AFP / Getty Images
Photographer: Yasser Al-Zayyat / AFP / Getty Images
The Kuwaiti government transferred the last of its assets to the country’s sovereign wealth fund in exchange for money to cover its budget deficit, after a political dispute over loans left one of the world’s richest nations penniless and led to Fitch must cut its outlook to negative.
Fitch affirmed Kuwait’s AA rating, but said that “the imminent exhaustion of liquid assets” and “the absence of parliamentary authorization for the government to borrow” was creating uncertainty. Your report follows the recent notice from S&P Global Ratings that consider demoting Kuwait in the next six to 12 months if politicians are unable to overcome the impasse.
Kuwait outlook reduced to negative at Fitch on Debt Gridlock
Although it is a high-income country, years of lower oil prices have forced Kuwait to burn its reserves. Desperate to generate liquidity, the government started last year exchanging its best assets for cash with the $ 600 billion Future Generations Fund, which aims to safeguard the wealth of the Arab Gulf nation for a while after oil. With that now, it is unclear how the government will cover its eighth consecutive budget deficit, projected at 12 billion dinars for the fiscal year beginning in April.
Assets include holdings in Kuwait Finance House and telecommunications company Zain, said a person familiar with the matter, asking not to be identified because the information is private. State-owned Kuwait Petroleum Corp., which has a face value of 2.5 billion dinars ($ 8.3 billion), was also transferred from the government’s treasury in January, the source said.
The Ministry of Finance declined to give details of the exchanges. In response to Fitch, however, Finance Minister Khalifa Hamada said that Kuwait’s financial position remained “robust” due to the mattress provided by the FGF. The government’s priority going forward would be to restore the treasury, he said, without specifying how.
“It is a very immediate crisis now, not a long-term one as it was before,” said Nawaf Alabduljader, professor of business administration at the University of Kuwait. “The Fund for Future Generations is our life jacket, but we don’t have a boat to take us to the coast, we have no vision. We need restructure our economy and leave the welfare state. “
Free fall
Kuwait’s oil and gas exports have dropped significantly since the 2014 highs
Source: IMF
Like its neighbors, Kuwait is struggling with double pressures from Covid-19 and lower oil prices. Unlike Saudi Arabia and other countries, however, Kuwaiti lawmakers blocked loan proposals on international markets to cover the fiscal deficit. Kuwait has not returned to the market since its first issue of Eurobonds in 2017.
While nearly three-quarters of the budget is devoted to public sector wages and subsidies, lawmakers have also opposed any suggestion of spending cuts, saying the government must reduce waste and corruption before transferring the burden to the public or appealing. the debt.
The FGF, however, cannot be played without legislation, and the idea of diving into the national savings pot is deeply unpopular. Parliament passed a law last year exempting the government from transferring the usual 10% of revenues to the FGF during years of deficit.
The exchanges bought a few months from the government to pass its loan law. If that fails, it may still take a a FGF loan or debt plan could be issued by decree, although both scenarios are unlikely for the time being.
“They are just buying time,” said Jassim Al-Saadoun, head of Al-Shall Economic Consultants.
One of the richest in the world Petrostates Running out of money
With 80% of government revenue based on oil, Kuwait needs crude oil at $ 90 to balance the new budget. But the benchmark Brent was trading around $ 58 a barrel on Wednesday, while spending is expected to rise 7%.
Parliament’s finance committee began reviewing the loan bill again on Tuesday, raising expectations for a thaw, but the boldness has prompted warnings that repeated delays could lead to long-term costs.
Kuwait would be looking “or the imposition of high taxes,” said Talal Fahad Alghanim, former CEO of Boursa Kuwait. “Or, if the government fails to convince parliament, the central bank will have to resort to devaluing the dinar.”
– With the help of Abeer Abu Omar and Abbas Al Lawati
(The updates lead to include Fitch, adds statement from the Ministry of Finance in the fourth paragraph, other changes over)