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Thu 6 Jun 2019 10:05 AM

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Kuwait's sovereign wealth fund grows despite oil shocks

The Kuwaiti government has recorded fiscal deficits since 2015

Kuwait's sovereign wealth fund grows despite oil shocks

Kuwait’s sovereign wealth fund assets have grown despite the impact of oil prices, according to a report from Moody’s Investors Service.

In the report, Moody’s noted that oil price shock has led to the Kuwaiti government recording sustained fiscal deficits since 2015, forcing it to draw on the reserves of one of the country’s two sovereign wealth funds.

“The financial positions of the underlying funds have diverged sharply,” Moody’s analyst Thaddeus Best said. “The larger Future Generations Fund (FGF)...has continued to grow with solid profitability to about 309 percent of Kuwait’s gross domestic product.”

Moody’s expects the FGF to continue to grow  as long as the fund remains profitable, Best added.

The Kuwaiti government’s second investment vehicle, the General Reserve Fund (GRF) has been significantly drawn down since 2015 and 2016 to help finance deficits caused by oil prices.

The report noted that Kuwait’s fiscal deficit peaked at 17.5 percent of GDP in 2016-2016, down from a 20-percent surplus in 2013 and 2014.

In response to the government efforts to relieve pressure on the GRF by issuing domestic and international debts, the Kuwaiti parliament blocked government’s attempts to increase the debt ceiling and lengthen tenors.
As a result, Kuwait’s debt law expired and the government was forced to finance deficits and maturing domestic borrowings from the GRF, which led to a drawdown of assets.

Best added that the depletion of the GRF will be dependent on whether Kuwait passes another debt law. The government will need to finance deficits of approximately 9 percent of GDP over the next several years.

“However, as only around 65 percent of GRF assets are liquid, the fund would not be able to finance around three years of deficits,” he said. “As a result, without a new debt law in place, the liquid portion of GRF assets could be depleted by the end of the fiscal year of 2021-22.”

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