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| Kuwait's energy-dependent economy is not coping well with the pandemic like its neighbors. |
Thirty years later, we see it confront perhaps a more invidious threat in the form of the spread of a pandemic. Kuwait's current plight reflects that of its neighbors--albeit in a more extreme way. You see, Kuwait is burning up its liquid reserves at a prodigious rate, so much so that it projects being unable to pay its civil servants after October. While it has a sterling credit rating (like most other Middle Eastern energy exporters, it must be said), its legislature's delays in authorizing further borrowing are causing it to unsustainably deplete its liquid reserves in the meantime:
Kuwait has 2 billion dinars ($6.6 billion) worth of liquidity in its Treasury and not enough cash to cover state salaries beyond October, Finance Minister Barak Al-Sheetan warned parliament, as political wrangling again delayed efforts to return to international bond markets.The General Reserve Fund is a separate pot of money from that which is invested by its sovereign wealth fund mostly in less liquid foreign assets. Overall, the Kuwait Investment Authority is the fourth-largest of its kind in the world. Yet, [GRF] funds can be used to pay for civil servants' salaries are dwindling. Note there is also a "good governance" complaint thrown in here as well as lawmakers point out that the country's leaders have not been [surprise!] exemplars of fiscal accountability and rectitude with regard to past petrodollar earnings. Imagine the Middle East being run by a jillion Jared Kushners and you wouldn't be far off.
The government is withdrawing from its General Reserve Fund at a rate of 1.7 billion dinars a month, meaning liquidity will soon be depleted if oil prices don’t improve and if Kuwait can’t borrow from local and international markets, he said.
As energy-rich Gulf states see their finances hammered by the collapse in oil prices and the coronavirus pandemic, the remarks point to a dramatic reversal of fortunes for some of the world’s wealthiest nations. Managing the crisis has proven especially challenging for Kuwait, where all laws must be approved by lawmakers who accuse the government of mismanaging public money and are blocking legislation that would allow it to borrow abroad.
The end result is that Kuwait, of all places, is facing a credit downgrade:
In March, Standard and Poors Global Ratings put Kuwait’s sovereign rating on negative watch, and Moody’s Investors Service followed. The IMF said that month that while Kuwait has large financial buffers and low debt, its “window of opportunity to tackle its challenges from the position of strength is narrowing.”The reality is that Kuwait is an energy-reliant one-trick pony like its neighbors. Worse still, the bulk of its employment is in the public sector and predicated upon the fortunes of the aforementioned state-led energy exports. Even if it is able to cover its current fiscal shortfall by issuing debt, you have the feeling that the hydrocarbon age is nearing its end. What this future means for the fate of various authoritarian Middle Eastern regimes like Kuwait's is an interesting question.
In June, Sheikh Sabah Al-Ahmed Al-Sabah, Kuwait’s ruler, issued a call to transform the economy to one less reliant on oil and urged rationalizing spending. More than 90% of the country’s revenue is generated from oil.
Who knows? Perhaps Kuwait's fiscal reckoning--and its lawmakers' nascent questioning of the entire Middle Eastern petrostate model--foreshadow the region's political future