DUBAI (Reuters) – Steps taken by the Kuwaiti government to reduce liquidity meltdown could reduce the risk of liquidity crunch to the third quarter of this year, Bank of America estimates.
The Kuwait General Reserve Fund (GRF), the sovereign fund used to address state deficits, was crushed by the decline in coronavirus-driven oil prices and a continuing stance between the government and parliament about ‘implementation of measures such as law to allow state loans.
The fund raised about $ 6 billion to 7 billion dinars ($ 19.87 billion to $ 23.19 billion) a few months ago through an exchange of funds with the Kuwait Futures Generation Fund (FGF) – a nesting egg when the country’s oil runs out – and thanks to money returned to the GRF after last year’s law stopped a mandatory annual transfer of 10% of state income to FGF.
“Authorities have taken steps to reduce liquid funding in the GRF. We anticipate that this will extend the timeline for reducing GRF liquidity to 3Q21, ”BofA said in a report dated 17 March.
“By bringing back beneficial shares from government agencies, this could extend the timeline.”
The GRF is negotiating with state-owned Kuwait Petroleum Corporation on a new payment schedule for more than $ 20 billion in accumulated shares, sources told Reuters this month.
While such a compromise could boost GRF’s liquidity, the trends are likely to occur over a relatively long period of time rather than forward, BofA said.
“Authorities can also talk to other government agencies for what we think are similar moves,” the bank said.
The rating agency Fitch last month described its view of Kuwait’s sovereign debt level as “negative” from “stable”.
“Without allowing a law issuing new debts, the GRF could run out of liquidity in the coming months without further steps to replenish it,” Fitch said.
($ 1 = 0.3019 Kuwaiti dinars)
Reciting with Davide Barbuscia; Edited by David Goodman