Moody's: Borrowing from 'future generations' enhances Kuwait's financial resilience and expands its financing options
- Expected annual borrowing from the “Future Generations” Fund amounts to 40% of GDP
- Existing government loan balance stands at 50% of GDP
- Default yield on anticipated financing ranges between 6% and 8%
- The Fund’s assets reach 640% of GDP by end of 2025
- Expected deficit for the current fiscal year is 20% of GDP
- Borrowing from the “Future Generations” Fund alleviates public debt pressures on the government
- Reinvestment of returns has bolstered the growth of the Future Generations Reserve assets
- The law establishes a clearer institutional framework governing the relationship between the “General Reserve” and the “Future Generations” Fund
Moody’s Investors Service stated that the decree-law issued on September 1, 2026, which authorizes the Public Authority for Retirement Benefits (Public Pension Authority) to borrow from the Future Generations Reserve, represents a positive credit development. This is because it establishes a permanent framework enabling the government to access its accumulated and substantial financial savings, including using a portion of them to cover part of the fiscal deficit that the agency expects to result from the ongoing conflict in the Middle East.
Moody’s rates Kuwait at A1 with a stable outlook, estimating that the Public Authority for Investment managed approximately $750 billion in government financial assets by the end of 2025, mostly liquid, equivalent to roughly 475% of GDP. The Investment Authority manages the General Reserve and the Future Generations Reserve, along with other state-endowed funds.
Moody’s views that the amendment, alongside its direct impact on fiscal flexibility, establishes a clearer institutional framework for the relationship between the General Reserve, which serves as the government’s treasury account, and the Future Generations Reserve, which constitutes the primary investment portfolio of the Investment Authority.
Moody’s clarified that prior to the amendment, the Future Generations Reserve law explicitly prohibited the government from withdrawing funds from the reserve, meaning any use of its funds required separate legislative approval.
The agency noted that none of the other Gulf countries have imposed similarly strict restrictions on using sovereign wealth fund assets to finance government spending.
Under Decree-Law No. 81 of 2026, borrowing from the Future Generations Reserve to support the Public Pension Authority is permitted as an exception, by Cabinet decision, based on a proposal from the relevant minister who chairs the Investment Authority’s Board of Directors, and after the Board’s approval.
The borrowing decision must include the loan amount, its purpose, the return on it, its duration, and the repayment schedule or installment and return payment timeline, as well as conditions and controls for rescheduling or restructuring the debt. The decree-law also stipulates that priority for repaying these loans shall come from state revenues in the event of a surplus, and the loan cannot be reduced or waived except by law.
The decree-law also sets clear borrowing ceilings: total outstanding loans during a single fiscal year must not exceed 100% of the average returns achieved by the reserve over the last five audited fiscal years, and the total accumulated loan balance must not exceed 10% of the net asset value of the reserve according to the latest audited financial statements. New loans are prohibited if either of these ceilings is exceeded.
Based on Moody’s estimates of the Future Generations Fund’s assets, and assuming an average return of between 6% and 8%, the agency estimates that the maximum potential annual borrowing from the fund could reach approximately 30% to 40% of GDP, while the total outstanding loan balance could reach around 50% of GDP.
However, actual limits could be smaller or larger, depending on the actual size of the Investment Authority’s assets, which some estimates suggest reached approximately 640% of GDP by the end of 2025, as well as their growth over time due to reinvestment of returns, meaning borrowing limits could reach much higher levels.
The agency believes that access to domestic financing from the Investment Authority expands the government’s available financing options and could slow the pace of debt accumulation, if a larger share of its financing needs can be met from domestic sources. At the same time, the agency will not include borrowing from the state’s sovereign wealth fund in the existing government debt stock.
Moody’s clarified that since the enactment of the new Financing and Liquidity Law in March 2025, the government has issued local debt worth 3.75 billion dinars, equivalent to 7.9% of GDP for fiscal year 2025–2026, along with $17.25 billion in dollar-denominated bonds issued in international markets, equivalent to 11.1% of GDP, and $11.65 billion in other forms of external debt, equivalent to 7.7% of GDP.
Approximately half of this borrowing occurred during the fiscal year ending in March 2026, when the government recorded a deficit of 15% of GDP, compared with 2.1% in the previous fiscal year. As a result, government debt rose to 19% of GDP by the end of March 2026, compared with 2.9% in March 2024.
Under the agency’s baseline scenario, Moody’s assumes that shipping traffic through the Strait of Hormuz will begin to return to normal in the coming months, but will not reach pre-conflict levels before the first quarter of 2027. Consequently, it expects the fiscal deficit to widen to approximately 20% of GDP in the current fiscal year.
