Kuwait to transfer 2b dinars to General Reserve Fund
Newly injected liquidity to cover government’s budget shortfall
Kuwait City: Kuwait’s Ministry of Finance is preparing to transfer 2.05 billion Kuwaiti dinar in liquid cash after the parliament approved a law limiting the transfer of state funds to the Future Generations Fund, Al Qabas reported.
The cash will be pumped into the General Reserve Fund, which will enhance the liquidity of the fund until the government finds alternative means of enhancing liquidity, a source told Al Qabas.
Law on fund transfer
On last Wednesday, the National Assembly passed a law that would limit the transfer of funds from the General Reserve Fund to the Future Generation Funds. The law would allow funds to be transferred contingent on a budget surplus, as in the past 10 per cent would automatically be transferred from the General Reserve to the Future Generation Fund each year.
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The Future Generation Fund, the oldest sovereign wealth fund in the world, is set up as a security option for the future generations Kuwaitis. The General Reserve Fund is the government’s main source of budget financing. Both funds are managed by the Kuwaiti Investment Authority (KIA).
The source said that this transfer is a temporary solution. The transfer of 2 billion Kuwaiti dinars will not be sufficient to cover government spending, such as salaries, for more than a few months as long as the price of oil keeps dropping.
Economic downturn
Drop in oil prices and the COVID-19 pandemic have adversely impacted Kuwait’s economy with the government expenditure far exceeds the government revenue.
Last week, the National Assembly turned down a Public Debt law that would allow Kuwait to borrow 20 billion Kuwaiti dinars, over the next 30 years.
The General Reserve Fund depleted by 1.5 billion Kuwaiti dinars within last 38 days. The government has been tapping into the General Reserve Fund to obtain liquidity amidst widening deficit. S&P Global Ratings predicts that the General Reserve Fund will be unable to handle the economic downfall alone.