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Abu Dhabi, UAESaturday 22 September 2018

Kuwait to need $100bn financing over next five years, IMF says

Latest report says transfers to Future Generations Fund will put fiscal pressure on country although banking sector is sound

The Kuwait Stock Exchange trading hall in Kuwait City. The IMF says the country will need to adjust its financing requirements. Noufal Ibrahim/EPA
The Kuwait Stock Exchange trading hall in Kuwait City. The IMF says the country will need to adjust its financing requirements. Noufal Ibrahim/EPA

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 its large financial buffers, low debt and a sound financial sector, it noted that lower oil prices had weakened the country's 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 IMF said in a statement on Thursday.

"The financing needs will continue to be met through a limited amount of domestic borrowing, external borrowing, and drawdown of [Kuwait's General Reserve Fund (GRF)] assets. While this would bring readily available GRF buffers down under the baseline, total [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."

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Excluding FGF contributions and investment income, the IMF expects Kuwait's overall budget to remain “nearly balanced”, assuming a baseline oil price of $49 per 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+ agreement is extended," the IMF said.

Kuwait's 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."

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