The International Monetary Fund estimates Kuwait’s financing needs will amount to some 180 billion dollars over the next six years given the Gulf state’s “modest” fiscal measures and expectations of lower oil prices.
Kuwait said earlier this month it expects a budget deficit of 9.2 billion dinars (30.31 billion dollars) in the fiscal year starting on April 1, a deficit increase of 19 per cent compared to the previous year.
“Subdued oil prices and output are weighing on near-term growth prospects and external and fiscal balances,” the Washington-based international crisis lender said in a statement.
It described its preliminary findings at the end of an official visit to the country.
“The recent run-up in spending has worsened the fiscal position and eroded liquid buffers.
“Without a course correction, the fiscal and financing challenges would intensify and the window of opportunity to proceed at a measured pace would narrow,” it added.
A major oil exporter, Kuwait was among the most resilient economies in the region when oil prices sank in 2014 to 2015 thanks to low debt and large financial assets.
However, it has not tapped global debt markets since its debut 8 billion dollars debt sale in 2017, because parliament has yet to pass a law that would allow it to raise its debt ceiling and to issue debt with longer maturities.
That has raised concerns among analysts that its wealth fund General Reserve Fund (GRF), managed by the Kuwait Investment Authority (KIA), might be depleted over the next few years to cover Kuwait’s deficits.
The IMF expects Kuwait’s consolidated fiscal balance to turn from a 5.5 per cent of gross domestic product surplus in 2019 to a deficit of a similar magnitude in 2025, which would lead to financing needs of some 180 billion dollars over the next six years.
It estimated KIA’s assets surpassed 410 per cent of GDP by the end of 2019, as one of its funds continued to receive mandatory transfers from the government and created strong returns on its assets.
“However, the continued drawdown from the GRF for fiscal financing reduced its estimated total and liquid balances to 56 and 24 per cent of GDP by June 2019,” the IMF said.
It added that it expected GRF’s “readily available” assets to be exhausted in less than two years, without recourse to other funding sources.
“Borrowing would help reduce draw downs from the GRF allowing it to last longer,” it said.
“Assuming no legal restriction on borrowing, to finance the remaining gap, government debt would have to rise to over 70 per cent of GDP in 2025 from 15 per cent in 2019.
“Even borrowing activities that the fund said would be `unprecedented.
“Growth in Kuwait’s non-oil sector had strengthened in 2019 but lower oil prices and output cuts weighed on its oil sector, resulting in overall economic growth of about 0.7 per cent in 2019, down from a 1.2 per cent growth in 2018,’’ the IMF said.
Report says Kuwait’s 2020 to 2021 budget assumes an oil price of 55 dollars a barrel.