In an open discussion between the officials of the Kuwait Investment Authority (KIA) concerned with liquidity management paints a shocking picture of how many government institutions are handling their liquidity surpluses.
Informed sources told a local Arabic daily, that there was an idea among KIA officials that most government agencies do not optimally utilize their fund surpluses. The sources also shared that the accumulated profits and reserves are not supposed to be kept away from KIA investment because it hinders the management government funds.
The sources of KIA mention institutions like the Kuwait Ports Authority, the National Fund for Small and Medium Enterprises Development and Care, the Kuwait Petroleum Corporation, and others are financially linked to the General Reserve Fund. The Central Bank of Kuwait has been excluded from the list because of its multiple monetary powers and responsibilities in using the available liquidity surpluses.
The institutions are maintaining high rates of liquidity in order to maximize their reserves, and their reluctance in transferring their liquidity surpluses to the public treasury, prevents the “general reserve” from optimally utilizing all available government liquidity. The KIA sources also explained that it is necessary to reclassify the reserves of these entities, and to transfer their surpluses to the “General Reserve”, to increase the efficiency of managing the cash liquidity of the government.
It was also observed that high levels of money is available in the accounts of various government entities and these funds lie dormant for most of the year. The move calls for the optimum utilization of all the liquidity stored in reserves in government budgets, especially in light of the pressures that the General Reserve Fund has been facing for a long time.
Sources said that many government agencies have fallen into the “liquidity trap”, recently after their reserves grew to higher levels. This was attributed to high surpluses, without an urgent need to utilize them soon.
“Of course, the KIA officials understand that the accumulated funds in the reserves of these entities are being invested, but in light of the decline in (general reserve) liquidity to unusual levels, even in light of the high oil prices, the idea of restructuring the high reserves found in the budgets of government agencies is essential,” said the sources.
The sources also indicated that the correct measure is to ensure the optimal management of all government liquidity. If the unused reserves are added to the general reserve, they will be better managed funds and can be utilised in many more avenues. The combined reserve will also have a broader investment spectrum which can lead to better returns.