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The Kuwaiti government has transferred its latest performing assets to the country's Sovereign Wealth Fund in exchange for cash to cover the budget deficit after a political dispute over borrowing one of the richest countries in the world ran out of cash and encouraged Fitch to make his views negative.
Fitch affirmed Kuwait’s AA rating but said “the imminent depletion of liquid assets” and “absence of parliamentary authorization for the government to borrow” was creating uncertainty. Its report follows S&P Global Ratings’ recent warning that it would consider downgrading Kuwait in the next six to 12 months if politicians fail to overcome the impasse.
Though it’s a high-income country, years of lower oil NSE -0.93 % prices have forced Kuwait to burn through its reserves. Desperate to generate liquidity, the government began last year swapping its best assets for cash with the $600 billion Future Generations Fund, which is meant to safeguard the Gulf Arab nation’s wealth for a time after oil. With those now gone, it’s not clear how the government will cover its eighth consecutive budget deficit, projected at 12 billion dinars for the fiscal year beginning April.
The assets include stakes in Kuwait Finance House and telecoms company Zain, a person familiar with the matter said, asking not to be named because the information is private. State-owned Kuwait Petroleum Corp., which has a nominal value of 2.5 billion dinars ($8.3 billion), was also transferred from the government’s treasury in January, the person said.
The Finance Ministry declined to give details about the swaps. Responding to Fitch, however, Finance Minister Khalifa Hamada said Kuwait’s financial position remained “robust” due to the cushion provided by the FGF. The government’s priority going forward would be to replenish the treasury, he said, without specifying how.
“It’s a very immediate crisis now, not a long-term one like it was before,” said Nawaf Alabduljader, a business management professor at Kuwait University. “The Future Generations Fund is our life jacket but we don’t have a boat to take us to shore, we have no vision. We need to restructure our economy and move away from the welfare state.”
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Like its neighbors, Kuwait is contending with the twin pressures of Covid-19 and lower oil prices. Unlike Saudi Arabia and others, however, Kuwaiti lawmakers have blocked proposals to borrow on international markets to cover the fiscal shortfall. Kuwait hasn’t returned to the market since its debut Eurobond issuance in 2017. Find more.
Source: Online/SZK
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