Kuwait liquidity crunch unlikely until third quarter

Steps taken by the Kuwaiti government to mitigate depletion of the treasury’s liquid assets could push back the risk of a liquidity crunch to the third quarter this year, Bank of America estimates.

Kuwait’s General Reserve Fund (GRF), the sovereign fund used to cover state deficits, has been squeezed by the coronavirus-driven drop in oil prices and a continued stand-off between government and parliament on implementing measures such as a law to allowing state borrowing.

The fund raised about 6 billion to 7 billion dinars ($19.87 billion to $23.19 billion) in recent months through asset swaps with Kuwait’s Future Generations Fund (FGF) — a nest egg for when the country’s oil runs out — and thanks to money returned to the GRF after a law last year halted a mandatory annual transfer of 10 per cent of state revenue to FGF.

“Authorities have taken steps to mitigate the depletion of the liquid assets in the GRF. We estimate this lengthened the timeline for depletion of GRF liquidity until 3Q21,” BofA said in a report dated March 17.

“Clawback of accrued dividends from government entities could lengthen this timeline further.”

“Without passage of a law permitting new debt issuance, the GRF could run out of liquidity in the coming months without further measures to replenish it,” Fitch said. — Reuters