[ad_1]
The Kuwaiti government has transferred its last high-yield assets to the sovereign wealth fund in exchange for liquidity to cover the budget deficit, after political disputes over new loans left one of the world’s richest countries in a crisis of liquidity. Fitch determined that it review the outlook. to “negative,” Bloomberg reports, according to AGERPRES.
The rating agency Fitch confirmed Kuwait’s “AA” rating, but emphasized that “the imminent depletion of liquid assets and the absence of Parliament’s authorization for the government to borrow” creates uncertainty. Fitch’s announcement follows a recent warning from S&P Global Ratings that the agency could downgrade Kuwait’s rating in the next 12 months if politicians fail to break out of the stalemate.
Although it is a high-income country, several years of low oil prices have forced Kuwait to use up its reserves. In a liquidity crisis, last year the government began to transfer its best assets to the Future Generations Fund in exchange for liquidity.
Also read: Hit the budget! Prime Minister Cîțu announces the disappearance of some bonuses
These assets include stakes in Kuwait Finance House and the telecommunications company Zain, a source close to the case said. The state-owned oil company Kuwait Petroleum Corp., which has a nominal value of 2.5 billion dinars ($ 8.3 billion), was also transferred from the state treasury to the sovereign wealth fund in January, says the source who wished to remain anonymous.
“It is a short-term crisis, not a long-term crisis. The Future Generations Fund is our life jacket, but we don’t have a ship to take us ashore, we don’t have a vision. We need to restructure our economy and move away from a state of wellness, “says Nawaf Alabduljader, professor of business management at the University of Kuwait.
Like neighboring states, Kuwait is facing pressure from the Covid-19 pandemic and low oil prices. But unlike Saudi Arabia and other countries in the region, Kuwaiti lawmakers have blocked proposals to access international financial markets to cover the deficit. Kuwait has not returned to international markets since the 2017 Eurobond issue.
Although nearly three-quarters of the country’s budget is allocated to paying salaries and subsidies for public sector employees, lawmakers also opposed any proposals to cut spending, saying the government must cut waste and corruption before move the load to the public. Or resort to loans.
Meanwhile, the $ 600 billion Future Generations Fund, which has assets worth $ 600 billion, is not accessible without legislation, and the idea of using national reserves is unpopular. Last year, Parliament passed a law that exempted the government from transferring the usual 10% of income to the Future Generations Fund in deficit years.
Also read: Deputy Prime Minister Dan Barna, in conflict of interest! The document signed by the leader of the USR.
The swap of liquidity assets with the sovereign wealth fund gave the government a few months off to pass a loan law in Parliament. If this option fails, the government could resort to sovereign wealth borrowing or a bond issuance plan, which could be adopted by decree, but for now both scenarios are unlikely.
With 80% of government revenue based on oil, Kuwait needs a barrel of crude oil priced at $ 90 to have a balanced budget. But on Wednesday, a barrel of Brent crude was trading at about $ 58. Furthermore, given the 7% increase in state spending in the fiscal year starting in April, Kuwait is heading for a 12 billion dinar budget deficit, the eighth consecutive budget deficit.
[ad_2]
