Dubai: Kuwait authorities have taken steps to mitigate the depletion of the liquid assets in the General Reserve Fund (GRF), the sovereign fund used to cover state deficits up to the third quarter of 2021, according to Bank of America Merrill Lynch (BoAML).
“We estimate this [the steps taken by the authorities] lengthened the timeline for depletion of GRF liquidity until Q3, 2021” said Jean-Michel Saliba , MENA Economist/Strategist at BoAML said in a note.
The fund raised about 6 billion to 7 billion dinars ($19.87 billion to $23.19 billion) in recent months through asset swaps with Kuwait’s Future Generations Fund (FGF).
“Clawback of accrued dividends from government entities could lengthen this timeline further,” said Saliba.
The GRF is negotiating with state-owned Kuwait Petroleum Corporation on a new payment schedule for more than $20 billion in accrued dividends, sources told Reuters this month.
The precedent of the amendment of the FGF transfer law suggests further room for future compromises between the parliament and the Cabinet. On 19 August 2020, the parliament amended the decree law (106) of the year 1976 that mandated the transfer of 10 per cent of all government revenue to the FGF. The amendment made the 10 per cent transfer conditional on registering a fiscal surplus. The law came into force on September 13 with retroactive effect, starting from 2018.
Ongoing negotiations between authorities and the Kuwait Petroleum Corporation (KPC) to recoup KD7 billion in accrued dividends could boost GRF liquidity. However, such transfers could take relatively long timeframe.
Swaps and debt
According to BofAML, the GRF may be able to place further illiquid assets to the FGF in exchange for liquidity. The GRF holds some government shares in public enterprises (assets such as the recently transferred KPC and the Kuwait Fund for Arab Economic Development). It holds also Kuwait’s participation in multilateral and international organizations such as the IMF and the World Bank.
The GRF could borrow directly from the FGF. This would follow the precedent following the First Gulf War, which saw withdrawals over 1990-94 of $85 billion from the FGF that were subsequently fully repaid. However, authorities do not appear to be considering this option, likely due to the anticipated opposition from the parliament.
Deposits at central bank
As a last option the government could withdraw KD1.8 billion ($5.8 billion) from its accounts at the Central Bank of Kuwait (CBK), although it is unclear if these deposits belong to the central government.