Kuwait City: On Monday, the Kuwaiti government announced it has submitted a draft law to the National Assembly (parliament) to amend the Future Generations Fund law in order for the government to be able to withdraw up to five billion Kuwaiti dinars from the fund to cover its growing deficit.
The KD181 billion ($598.3 billion) fund is currently off limits to the government and has not been tapped into since after the 1990 Iraqi invasion of Kuwait.
This is the latest move by the Kuwaiti government to secure short-term liquidity as it is strapped for cash.
As parliament is suspended until March 18 and a new government has not been formed since the previous one resigned in December, the draft law cannot be voted on until both branches are back in session. That said, many MPs have vowed to vote against the draft law calling it “dangerous”.
The Future Generation Fund, the oldest sovereign wealth fund in the world, is set up as a security buffer for future generation of Kuwaitis.
Lack of liquidity
Drop in oil prices and the COVID-19 pandemic have both had a negative effect on the Kuwaiti economy, as governmental spending has increased and the state’s revenue has decreased.
Currently, the government is withdrawing money from the General Reserve Fund, the state’s main source of budget financing, to obtain liquid cash.
In an attempt to generate more liquidity, back in August the parliament 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. In the past, 10 per cent would automatically be transferred from the General Reserve to the Future Generation Fund each year.
As Kuwait has been struggling with a budget deficit since the 2015-2016 fiscal year, the government has been trying to get a public debt law passed in parliament. The government and parliament have been deadlocked for the past couple of years with regards to borrowing money from abroad.
Back in September, the Minister of Finance at the Time, Barrak Al Shitan stated that if the oil prices keep dropping and Kuwait is unable to borrow money from abroad then liquidity will soon run out.