IMF: Kuwait financing needs to reach $100bn over five years

Kuwait’s gross financing needs will remain “large” due to mandated transfers to its Future Generations Fund (FGF), the IMF said in it latest consultation report.

While the fund said the country is facing “lower for longer” oil prices from a position of strength, owing to large financial buffers, low debt and a sound financial sector, lower oil prices have weakened fiscal and external positions and generated large financing needs.

“After transfers to the FGF and excluding investment income, a fiscal deficit of about 15 per cent of GDP annually will generate cumulative financing needs of some US$100 billion over five years,” the report said.

“The financing needs will continue to be met through a limited amount of domestic borrowing, external borrowing, and drawdown of GRF [Kuwait’s General Reserve Fund] assets. While this would bring readily available GRF buffers down under the baseline, total GRF [Kuwait Investment Authority] assets would continue to increase in nominal terms.

“These developments will be broadly favourable for financial stability and credit growth, although there are downside risks to asset quality. Nonetheless, loss absorption buffers are high and banking sector liquidity is ample.”

Excluding FGF contributions and investment income, the IMF expects overall budget to remain “nearly balanced”, assuming a baseline oil price of $49 a barrel until 2019.

“Nonetheless, if sustained, the recent rebound in oil prices may present upside risks, although these might be offset by lower oil output than presently assumed if the Opec-plus agreement is extended,” the IMF said.

Real GDP will contract 2.5 per cent in 2017, with 6 per cent lower oil output due to the Opec agreement on production cuts, the report said.

The government’s non-oil balance is projected to fall well short of levels needed to ensure equally high living standards for future generations – by close to 18 per cent of non-oil GDP by 2022, according to the fund.

“Additional fiscal consolidation is therefore needed to close this gap, reduce financing needs, preserve liquid buffers and curb the projected build-up in government debt.”