Kuwait’s Ministry of Finance to preparing to transfer $6.70 billion in liquid cash from its Future Generations Fund after the parliament approved a law limiting the transfer of state funds.
The transfer which will be made to the General Reserve Fund is expected to temporarily improve its liquidity as the government seeks alternative means to enhance its liquidity position.
Kuwait’s national assembly had passed a law last week to limit the transfer of funds from the General Reserve Fund to the Future Generation Funds.
The law removed the mandate of automatically transferring 10 percent of funds from the General Reserve to the Future Generation Fund each year and ensured it that the transfer was only made if the Kuwaiti budget was at a surplus.
The oldest sovereign wealth fund in the world, The Future Generation Fund, is set up as a security option to protect 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).
This arrangement and the subsequent transfer is a temporary solution as $6.70 billion 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 Predicament
Adversely affected by the drop in oil prices and the COVID-19 pandemic, Kuwait’s economy has been depending on stimulus from the government who’s expenditure has far exceeded government revenue.
Earlier, assembly dismissed a public debt law that would have allowed Kuwait to borrow $65.39 billion over the next 30 years.
The government has been tapping into the General Reserve Fund to obtain liquidity amidst widening deficit. The Fund was exhausted by $4.90 billion within the last 38 days.
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