The Kuwait budget has an actual fiscal deficit of about one billion dinars per month, and there is a need to develop a rapid economic rescue plan to address imbalances in the state’s general budget and stop squandering of funds, reported Al-Anba daily, quoting a high-ranking government source.
Expressing regret at the outcome of the financial situation of Kuwait, the daily said, quoting a source, the liquidity in the General Reserve Fund is about to run out in the next two months, and it was inevitable for failing to adopt the public debt law and reform the country’s subsidy system and economic legislation.
The current oil prices, which fall around $ 40 a barrel, makes it difficult to cover this huge deficit in light of persistent expenditures of KD20 billion dinars and revenues that do not 7 billion dinars, which places the budget in a monthly dilemma due to the unfavorable conditions, stated the source to the daily.
“Difficult economic decisions should be implemented, and urgently, by increasing non-oil revenues, and reducing the size of the budget by no less than KD5-6 billion dinars,” the daily said.
“It is also necessary to reform the public sector and encourage citizens to work in the private sector,” and the source posed the question to the daily: “Is it reasonable that the size of citizens working in the public sector is 10 times than those in the private sector?” The source stressed the need for the government to be open and honest with citizens, that they have to sacrifice, as the subsidy system needs to be reformed, and limited to those deserving, and start to impose taxes.
Kuwait has a good opportunity to move past the current economic problem due to the decrease in population numbers and thanks to the building of huge financial reserves in the Future Generations Reserve Fund over a period of 50 years, the daily noted, referring to the source.
Only recently, Kuwait was downgraded for the first time by Moody’s Investors Service, a decision the ratings agency said reflects the increase in the government’s “liquidity risks.” The sovereign credit rating was cut two levels to A1, the fifth-highest investment-grade level and on par with China and Saudi Arabia, according to a statement on Tuesday. Moody’s now ranks Kuwait two steps lower than Fitch Ratings and one below S&P Global Ratings, which lowered its own assessment of the country in March for the first time ever.
Kuwait’s dollar bonds fell, with the yield on the $3.5 billion security due 2022 rising 14 basis points to 1.08%, the highest since June.
Moody’s projects net sovereign issuance of up to 27.6 billion dinars ($90 billion) would be needed to meet the Kuwaiti government’s funding requirements between the current fiscal year and the fiscal year ending March 2024. The rating company revised the outlook to stable, completing the review for downgrade started in March.
Lacking a new public debt law, the government has been unable to borrow since a debut Eurobond in 2017, forcing it to rely on the General Reserve Fund instead. Liquid assets there are close to being depleted, forcing the Finance Ministry to push through other measures to meet spending needs.
Kuwait’s parliament this month approved the state budget for the current fiscal year, projecting a deficit of KD14 billion after making adjustments to account for lower oil prices and a cut in spending. Tapping the much larger Future Generations Fund, designed as a buffer for the time when Kuwait’s oil runs out, would require a legislative change.
“In the continued absence of legal authorization to issue debt or draw on the sovereign wealth fund assets held in the Future Generations Fund, available liquid resources are nearing depletion, introducing liquidity risk despite Kuwait’s extraordinary fiscal strength,” Moody’s said.
Measures passed by lawmakers so far, including the removal of the mandatory annual transfer of 10% of government revenue to the Future Generations Fund, “have only extended the point of depletion” to December 2020, Moody’s estimates.
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