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The government of Kuwait is on the cusp of a liquidity crisis of $ 24 billion ... and the options are limited

 The international credit rating agency, Moody's, touched on the options available to the Kuwaiti government to finance the huge budget deficit that it expects to record this year, and whether legislation that allows the annual transfer from the Future Generations Fund will solve the financing situation.


The agency said that the deteriorating political situation in Kuwait, which enjoys an A1 credit rating with a stable outlook, has led, since last year's elections, to further delays in finding a solution to the financing challenges facing the government, according to Al-Rai newspaper.


Assuming that oil prices average $ 50 a barrel this year, Moody's says that the Kuwaiti government will need to borrow $ 24 billion in 2021 even after the transfer.


As a result, the agency expects the government to continue pushing for a law allowing it to issue debt instruments, but the Kuwaiti National Assembly is likely to oppose both legislation, according to the newspaper.


Few options

Regarding the options that the government has if the National Assembly does not pass debt transfer laws or the future generations law, Moody's estimates the remaining illiquid assets in the General Reserve Fund at about 17% of GDP, which is likely to be sold to the Future Generations Fund, as it did last year. . However, this will only cover less than half of the total projected government funding requirements.


She added that the government is also looking into the possibility of collecting the distributions of late dividends owed by the Kuwait Petroleum Corporation, but "Moody's" expects that the payment of dues will be over a long period of time so that the company's capital spending plans are not compromised.


In the absence of reforms

And whether the government can avoid the liquidity crisis through financial reforms, Moody's said that even if the government is able to sell all illiquid assets in the General Reserve Fund to the Future Generations Fund, it will still face a financing gap of about 14% of GDP. Total in fiscal year 2021/22, and 30% of GDP in fiscal year 2022/23.


However, the draft budget for the fiscal year 2021/22 does not include any fundamental reform measures in terms of spending or revenues, and the National Assembly is likely to oppose any subsequent measures of this magnitude.


And whether high oil prices or production can solve some financial problems, Moody's emphasized that Kuwait would need average oil prices at around $ 100 a barrel to balance the budget.

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