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A government decree published that day amends the founding law of the Future Generations Reserve to allow transfers to the General Reserve Fund which serves as the state’s primary treasury according to Bloomberg. The Kuwait Investment Authority manages both funds with combined assets estimated at more than 1 trillion dollars a figure S&P Global Ratings highlighted in its May affirmation of Kuwait’s AA minus sovereign rating. Annual borrowing is capped at the average investment returns over the preceding five audited years while the total outstanding balance cannot exceed 10 percent of the reserve’s net asset value the decree stipulated. Any such loans must be repaid once the budget records a surplus and cannot be written off without fresh legislation.
The decision reflects the severe economic pressure imposed by the conflict that erupted on February 28 when Iranian strikes began targeting Gulf energy infrastructure a timeline detailed in multiple regional assessments. Kuwait recorded zero crude oil exports in April for the first time since the 1991 Gulf War after averaging 1.2 million barrels per day in February Al Hurra reported citing official data. Oil sales normally generate around 90 percent of government revenue leaving the budget exposed when shipments through the Strait of Hormuz were disrupted the International Energy Agency noted in its post-conflict reviews. A wider fiscal deficit of approximately 20 percent of GDP is now projected for the current fiscal year compared with 5 percent a year earlier the National Bank of Kuwait said in a recent note.
Moody’s Investors Service described the new borrowing framework as credit-positive saying it expands financing options and bolsters resilience as the deficit widens. The agency estimated that annual draws could reach 30 to 40 percent of GDP under the caps while cumulative borrowing might total around 50 percent of GDP without breaching the rules. Standard and Poor’s had earlier pointed to liquid assets exceeding 550 percent of GDP as a substantial buffer that supported its stable outlook even as war-related disruptions mounted. Kuwait last accessed the fund during the 1990 Iraqi invasion when it withdrew billions to finance operations and reconstruction Arab News recalled in its coverage of the decree.
The Future Generations Fund was established to preserve oil wealth for future generations with 10 percent of annual state revenues directed to it by law according to historical records maintained by the authority. Its long-term investment mandate has produced consistent returns that compounded the principal over decades leaving a sizable cushion even after the current conflict’s impact. Osamah Alsayegh a research scientist at the Kuwait Institute for Scientific Research told analysts that the country’s low debt and substantial external assets provide significant economic resilience despite the immediate shocks. Goldman Sachs had projected in March that prolonged production halts could shrink GDP by at least 10 percent if output recovery took several months.
Kuwait’s sovereign wealth structure dates to 1953 with the creation of the world’s oldest such fund which evolved into the current General Reserve and Future Generations vehicles. The decree arrives as reconstruction needs grow following strikes on airports energy facilities and desalination plants that compounded the export losses. Government officials have emphasized that the measure is a temporary bridge rather than a structural shift with repayment prioritized to protect the fund’s intergenerational mandate. Regional benchmarks show other Gulf states drawing on similar reserves though Kuwait’s framework imposes some of the strictest quantitative limits seen in recent emergency responses.
Analysts at the Council on Foreign Relations have warned that prolonged conflict could prompt broader shifts in sovereign capital flows as domestic priorities compete with international investments. Kuwait’s move nevertheless underscores the buffers built over decades of disciplined saving a strategy that has limited the need for heavy external borrowing to date. The decree does not alter the fund’s core investment strategy which remains focused on global diversification to generate returns independent of oil volatility. With a ceasefire holding only limited respite the government is expected to monitor fiscal pressures closely before deciding on actual drawdowns.
