Political disputes continue to surround the Kuwait Investment Authority’s (KIA) US$693 billion store of sovereign wealth as the government faces fiscal woes arising from lower oil prices and the impact of the pandemic as well as political pressure to tap funds to bridge deficits.
This week, in an editorial in his Arab Times newspaper entitled "Prevent Eccentrics From Looting Kuwait's Funds", Kuwaiti press mogul Ahmed Al-Jarallah fired a broadside at politicians who he claims are driven by “electoral greed”, which is undermining the fund's performance. Al-Jarallah goes further in his criticism, comparing the fates of the KIA with Norway’s oil-backed Government Pension Fund Global (GPFG), managed by Norges Bank (NBIM), which is twice the size despite being established 20 years after its Kuwaiti peer.
“This difference indicates the extent of decline in performance, even if there are profits achieved annually, but according to reliable reports, these profits do not reach even two-thirds of the returns achieved by the Norwegian fund,” he wrote.
The attack on what he sees is the “government’s inability and parliamentary interference, which led to almost a tragic scene of what has become of the situation in the country” comes months after the KIA took onboard the government’s last performing assets in return for cash to plug the yawning budget deficit. The assets include stakes in Kuwait Finance House and telecoms company Zain, which are worth approximately US$2.0 billion and US$4.4 billion respectively. In addition, KIA was given control of the Kuwait Petroleum Corp, which has a nominal value of US$8.3 billion.
The assets were transferred to the Reserve Fund for Future Generations (RFFG), a long-term savings fund managed by the KIA that is intended to sustain the country’s economy when oil reserves are depleted.
Kuwaiti lawmakers have prevented the government from borrowing from international markets while at the same time opposed spending cuts. Meanwhile, oil prices are volatile and have periodically dipped well below the fiscal breakeven. The government is unable to dip into the RFFG without parliamentary authorization, while the General Reserve Fund (GRF) that is intended as a government treasurer is highly depleted.
Yet, the fiscal problems have not gone away with the KIA at the center of political arguments. The government now appears to be taking action to create some distance between Kuwait’s parliament and the fund management. According to the Kuwaiti newspaper Al-Rai, the government is studying the possibility of splitting the Ministry of Finance into two separate ministries, with one of them dedicated to the investment sector to separate it from budgetary activities. The newspaper’s sources said the move is to take investment and economic decisions away from traditional establishments.
The restructuring could involve an entirely independent ministry that draws together investment bodies, including the KIA as well as social security and privatization organisations, with KIA board member Fahad Al-Rashed appointed minister, according to Al-Rai.
A similar scenario is seen in Saudi Arabia with the Council of Economic and Development Affairs (CEDA) overseeing the Public Investment Fund (PIF), rather than the Ministry of Finance. CEDA is presided over by Crown Prince Muhammad bin Salman, providing him with a strong power base and bypassing traditional powers in the Kingdom’s establishment. The Saudi example is likely to have been at the forefront of Al-Jarallah’s mind when he urged the government in his editorial to “reconnect” the KIA to the head of state, the Emir, suggesting the SWF be placed beyond the reach of parliamentary interference.