The General Investment Authority said that the relative and temporary rise in oil revenues does not cover budget obligations and does not postpone or reduce the importance of pursuing draft laws that aim to provide liquidity in the state treasury and financial reforms.

In its response to the observations of the Audit Bureau, the Authority indicated that the state’s general revenues depend entirely on the country’s oil sales and are received from the General Reserve Fund, and in view of the expectation that the general reserve liquidity will be completely exhausted as a result of paying the existing deficit in the state for several years, and coinciding with the decrease in production quantities. Due to the current contraction in the global economy, which resulted from the repercussions of the spread of the Corona virus, it has become necessary to adopt urgent measures aimed at providing cash liquidity in the general reserve. Accordingly, the sale of assets in the general reserve is to provide liquidity to cover the state’s requirements, which is to perform its main role as the state’s public treasury.

Regarding the General Reserve Fund’s loss of its most important investment components that generate annual returns after transferring its ownership to the Future Generations Fund, and transferring the Kuwait Petroleum Corporation’s investment from the General Reserve to the Future Generations Reserve, she said that the exhaustion of the General Reserve had occurred due to factors beyond the authority’s control and role (accumulated and continuing deficits). Due to the decline in oil revenues, the increase in the general budget, and the expiration of the public debt law in 2017, among other factors), the sale of assets in the general reserve is to provide liquidity to cover the state’s requirements, which is to perform its main role as the state’s public treasury.

The Authority stressed the importance of financial and economic reforms and addressing the scarcity of liquidity, stressing the necessity of concerted efforts of all parties and working as one team to achieve public financial sustainability, the most important of which is approving laws that aim to provide liquidity in the state treasury and accelerate the pace of reforms.

Country evaluation

The Audit Bureau confirmed that the decrease in the fund has negative effects on the country’s credit rating and financial capacity. He also pointed out the need for the Authority to exploit its current financial surpluses to restore its important assets and invest them in assets that apply to its new strategy.

The Bureau said that the transfer came to confront the scarcity of liquidity in the General Reserve and had a major impact on the General Reserve Fund and the Future Generations Fund together, as it affects the strategy of the Future Generations Reserve Fund in terms of distributing assets. It also constitutes a further weakening of the General Reserve Fund, as the Petroleum Corporation represents a tributary. Whatever the fund’s profits, the organization’s profits will be transferred, starting from the fiscal year 2020/2021, to the Future Generations Fund, in addition to the profits of the transferred local and Arab stock portfolio.

He continued: The continuation of these transfers would increase the risks to the work of the reserves in exchange for a temporary and limited recovery of the general reserve’s liquidity for a period not exceeding three months.

He called for the need to avoid influencing the work of reserves and search for sustainable sources of revenue development to confront the budget deficit by the concerned parties.

Liquidity depletion

The Authority said that the General Reserve Fund responded to the collapse of oil prices, in addition to the state’s expenditures and the Corona pandemic, which led to its austerity and the depletion of its liquidity and affected its ability to carry out its basic role, which is the financial buffer of the state, and it became necessary to reduce the burden on the general reserve and rebuild its liquidity.

She continued: The relative and temporary rise in oil revenues does not cover budget obligations and does not postpone or reduce the importance of pursuing draft laws that aim to provide liquidity in the state treasury.

The general reserve responded to the collapse of prices

She explained that the General Reserve Fund responded to the collapse of oil prices, in addition to state expenditures and the Corona pandemic, which led to its austerity and the depletion of its liquidity and affected its ability to carry out its basic role, which is the financial buffer of the state, and it became necessary to reduce the burden on the general reserve and rebuild its liquidity.

The Authority said that the General Reserve Fund is the financial receptacle and buffer to cover all the financial requirements of the state’s general budget, in addition to covering some financial requirements outside the framework of the state’s general budget.

Scheduling of “petroleum” profits due

Regarding the impact of transferring the Petroleum Corporation to the Future Generations Reserve Fund on the profits transferred to the general reserve, she explained that the profits due to the state’s general treasury, represented by the general reserve fund, were scheduled according to an agreement stipulating the payment of 60 quarterly installments starting in 2021, with the installment amounting to about 138 million dinars. Note that the transfer of future profits is determined by the legislator in the relevant laws.

Strategic distribution of assets

Regarding the impact of the transfer of the Petroleum Corporation on the strategy of the Future Generations Fund, to ensure that there is no impact on the strategic distribution of the assets of the Generations Reserve Fund, the Authority has taken several measures, including transferring the Corporation at book value, which reduces the exposure of the Generations Fund to this contribution, as it does not constitute a substantial value of Fund assets. This contribution is monitored in a way that ensures that the fund’s strategic asset allocation strategy is not affected.