KUWAIT CITY, June 5 (Xinhua) -- Kuwait's sovereign wealth fund assets have continued to increase despite the oil price shock, Moody's Investors Service said in a recent report.
In a report on the impact of oil prices on Kuwait's sovereign wealth fund assets, Moody's said that the oil price shock has led the Kuwaiti government to record sustained fiscal deficits since 2015, which forced it to draw on the reserves of one of its sovereign wealth funds.
"The financial positions of the underlying funds have diverged sharply," Thaddeus Best, analyst at Moody's, said in the report.
"The larger Future Generations Fund (FGF), one of the two funds managed by the Kuwait Investment Authority ... has continued to grow with solid profitability to about 309 percent of Kuwait's gross domestic product (GDP)," Best added.
"We expect FGF to continue to grow as long as the fund remains profitable and the mandatory transfer remains in place," he pointed out.
By contrast, Kuwait's government has drawn down its second investment vehicle, the General Reserve Fund (GRF), rapidly since the 2015-16 fiscal year to finance deficits triggered by the oil price shock, the report said.
According to the report, Kuwait's fiscal deficit peaked at 17.5 percent of GDP in 2016-17 fiscal year, a huge decline from a 20-percent surplus in 2013-14.
The government attempted to relieve pressure on the GRF in the early years of the oil price shock by issuing domestic and international debts.
However, the parliament blocked the government's attempts to increase the debt ceiling to 25 billion Kuwaiti dinars (82.22 billion U.S. dollars) and lengthen tenors up to 30 years in 2017 from 10 billion Kuwaiti dinars and 10 years respectively.
As a result, the debt law expired and the government was forced to finance deficits and maturing domestic borrowings from the GRF, which has led to an accelerated drawdown of its assets to an estimated value of 23 billion Kuwaiti dinars as of March 2019.
Depletion of the GRF would depend on if and when parliament will pass another debt law, he stressed, adding that the government will need to finance deficits around 9 percent of GDP over the next few years.
"However, as only around 65 percent of GRF assets are liquid, the fund would only be able to finance around three years of deficits," he said.
"As a result, without a new debt law in place, the liquid portion of GRF assets could be depleted by the end of the fiscal year of 2021-22," Best noted, which will have some implications for the sovereign credit worthiness.
For example, under the baseline scenario, which assumes the parliament approves the debt law by 2020, a depleted GRF implies that the government will rely much more on debt issuance for funding, he added.
