Borrowing from 'Ajeel' reduces reliance on global debt markets
Experts to “Al-Siyasa”: Innovative financing philosophy to confront financial pressures while strictly adhering to conditions and guarantees
Sadiq Al-Bassam: A strategic financial instrument that spares the country from the growing public debt
Sultan Al-Jazaf: Achieves financial savings by avoiding payment of compound interest to foreign entities
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Manal Al-Kandari: It must be balanced within limits of non-excessive withdrawals to preserve the rights of future generations
Najeah Bilal
In a decisive strategic move to safeguard national economic security and ensure financial stability in the country, the government approved a law decree authorizing organized borrowing from the Future Generations Reserve Fund. This step represents an innovative financing philosophy capable of addressing mounting financial pressures and covering the state’s growing general budget commitments, without imposing external financial burdens on the public treasury that could weigh heavily on the national economy.
In this context, economic experts speaking to “Al-Siyasa” agreed on the viability of this new direction, viewing domestic borrowing from the sovereign fund as a smart and ideal alternative that completely spares Kuwait from the risks associated with turning to global debt markets, which are accompanied by harsh conditions and high interest rates that affect independent economic decision-making. However, they simultaneously called for strict adherence to the conditions and guarantees established by the government in this regard.
A strategic financial instrument
In this framework, Dr. Sadiq Al-Bassam, head of the Accounting Department at Kuwait University and an economic expert, emphasized that the move toward withdrawing from the Future Generations Reserve represents a strategic financial instrument to prevent the escalation of public debt. He explained that this measure is a double-edged sword: its positive aspect lies in providing the necessary liquidity to cover budget deficits and finance major developmental projects without needing to resort to global markets. Meanwhile, its negative aspect involves the potential need to liquidate core strategic investment assets in the future. Al-Bassam warned against excessive borrowing from this reserve to avoid squandering promising investment opportunities in international markets and to preserve the financial solvency of the sovereign fund.
Preserving financial balances
In the same context, Sultan Al-Jazaf, a member of the Kuwait Economic Association and an economic expert, stated that the main objective of the government’s move to borrow from the Future Generations Reserve is to preserve local financial balances. This is particularly important given that the cessation of the war conditions unfolding between the US and Israel against Iran will cause significant financial deficits, especially since the halt in oil exports has impacted state revenues.
He further noted that relying on the self-capabilities of sovereign funds enhances economic sovereignty and grants policymakers greater flexibility in managing the public debt file and directing returns toward developmental projects. This approach follows an investment philosophy that serves higher national objectives and ensures the state’s future financial sustainability.
The importance of this step lies in protecting the country’s financial sovereignty and sparing it from unfair terms and high risks associated with external loans. Additionally, it provides immediate and urgent liquidity that enables the government to efficiently confront suffocating economic crises. This mechanism also helps alleviate the cost of living burden on citizens and supports the state’s general budget without the need to impose harsh taxes or austerity policies that harm social stability.
Al-Jazzaf added that one of the direct financial benefits of this approach is achieving substantial savings by avoiding the payment of high, compounding bank interest to foreign funding entities, alongside revitalizing and activating national assets by mobilizing funds and converting them into domestic investments with rewarding and sustainable returns. Furthermore, it protects the Fund’s existing external investments from arbitrary or hasty liquidation of foreign assets, thereby shielding the state from incurring unjustified market losses. He emphasized that this approach supports efforts to diversify national income sources by financing major infrastructure development projects that stimulate the economic engine and create job opportunities for national cadres.
Al-Jazzaf stated that the legislative and economic dimensions of modern fiscal policies, under the new law, are based on structural pillars that ensure the state’s financial solvency sustainability. These legislative steps aim to address budgetary imbalances through controlled and well-studied financing channels, avoiding external economic risks and safeguarding the rights of future generations.
Addressing Financing Gaps
Al-Jazzaf also pointed out that this solution addresses the financing gaps facing the state’s general budget during certain periods, including acute financial pressures. He noted that the new legislative intervention provides a fundamental legal solution, enabling the opening of a restricted internal financing channel that grants the government the authority to borrow in an organized manner from the Future Generations Fund, with the aim of supporting the general reserve in cases of extreme necessity. He highlighted that the importance of this alternative lies in sparing the state from resorting to uncalculated overdrafts or being forced to opt for external borrowing, which entails heavy financial costs and conditions that burden future development plans.
Al-Jazzaf noted that the new financial framework has intelligently regulated withdrawal operations by establishing a highly transparent accounting mechanism. This mechanism dictates that withdrawn funds are not treated as wasted assets or government grants, but are officially classified in financial records as investment loans with financial returns beneficial to the Future Generations Fund. The legislator also imposed strict financial ceilings, prohibiting total loans from exceeding 10 percent of the reserve’s net assets. This constitutes an inevitable legal guarantee that at least 90 percent of sovereign wealth remains invested in safe channels, completely isolated from any fluctuations or pressures that may affect the government’s fiscal policy.
Five Mandatory Conditions
Al-Jazzaf considered the five conditions set by the legislator as mandatory for regulating the loan and protecting the Fund’s assets. The first is the precise determination of the loan amount; the second is specifying the loan’s purpose and the expected return; the third is defining the time period and repayment schedule (for both the loan principal and its installments and returns); the fourth involves setting clear conditions and controls for restructuring or rescheduling the loan repayment; and the fifth condition emphasizes including any other necessary data and provisions to regulate and implement the loan. He noted that these conditions will serve as a guarantee for the state’s sovereign funds.
Sustainability of Public Finance
In a related development, Dr. Manal Al-Kandari, former secretary-general of the Kuwait Transparency Association, stated that withdrawing from the reserve is not necessarily a bad decision, nor is borrowing necessarily a good one. She clarified that the optimal decision primarily depends on the cost of capital, the expected return on reserve assets, the volume of withdrawals, the sustainability of public finance, and the impact of such a decision on the wealth of future generations.
She emphasized that withdrawals from the Future Generations Fund must be balanced with prudent, non-excessive drawdowns to safeguard the rights of those future generations and preserve the fund’s leadership. She expressed hope that withdrawals would coincide with increased spending on developmental projects that generate financial returns, thereby diversifying income sources. Al-Kandari stressed that the Future Generations Fund’s assets are not idle cash, noting that the Public Authority for Investment invests these funds globally in equities, bonds, real estate, and infrastructure, in accordance with a long-term strategy aimed at achieving the best possible returns for a given level of risk. She added that the fund’s returns are automatically reinvested in accordance with the law.
