Steps taken by the Kuwaiti government to mitigate the depletion of the treasury’s liquid assets could push back the risk of a liquidity crisis to the third quarter of 2021, announced Bank of America.
“Authorities have taken steps to mitigate the depletion of the liquid assets in the General Reserve Fund (GRF). We estimate this lengthened the timeline for the depletion of GRF liquidity until 3Q21,” the Bank said in a report dated March 17.
The GRF, Kuwait’s sovereign fund used to cover deficits, has been squeezed by the drop in oil prices, and a row between the cabinet and parliament on implementing measures including a law that allows state borrowing.
The fund raised about $19.87 to $23.19 billion in recent months through asset swaps with Kuwait’s Future Generations Fund (FGF), and thanks to money returned to the Reserve Fund after a law halted a mandatory annual transfer of 10 percent of state revenue to Generations Fund.
“Clawback of accrued dividends from government entities could lengthen this timeline further.”
The GRF is negotiating with state-owned Kuwait Petroleum Corporation on a new payment schedule for more than $20 billion in accrued dividends, according to Reuters.
The negotiations could boost GRF liquidity, however, the transfers are likely to occur over a relatively long timeframe rather than upfront, said the Bank.
“Authorities may also approach other government entities for similar transfers, in our view,” the Bank added.
Last month, Fitch Ratings downgraded its outlook on Kuwait’s sovereign debt rating to “negative” from “stable.”
“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.
