KUWAIT: Government proposes large annual sovereign wealth withdrawals to part-finance deficits

GULF COUNTRIES - In Brief 22 Feb 2021 by Justin Alexander

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The government has proposed an amendment to the 1976 law on the Future Generations Fund (FGF) that would permit the withdrawal of up to KD5bn ($16.5bn) annually to finance deficits (Qabas-Arabic). During the last year, the government has been in a bind because it is not able to withdraw from the FGF or issue debt without authorisation from the National Assembly. Until last summer, a previous government under a previous emir had repeatedly tried, without success, to pass a debt law through parliament, although there had been no attempt to seek authority for FGF withdrawals. Instead, parliament had permitted an end to the annual transfers of 10% of revenue to the FGF, which provided some breathing room, as did various accounting tricks, such as selling assets to the FGF from other parts of the government. However, even with these measures, cash reserves accessible to the Ministry of Finance have nearly been exhausted in financing the record deficit for the current fiscal year, which is officially expected to reach -KD14bn. With large ongoing deficits expected, either a debt law or a mechanism for withdrawing from the FGF, or both, are urgently required.We had expressed hopes last year that the new emir, Sheikh Nawaf, would either pass a debt law by decree during the brief interregnum before the new parliament formed in November, or would be able to persuade it to pass the law. He did not go for a direct degree, which is probably wise because it would have further raised tensions with parliament. However, his government did not resubmit the debt law, or propose much other legislation, because of broader political spats with the new parliament. The parliament, which appear...