Experts back fund borrowing, urge restraint and discipline

KUWAIT CITY, Sept 5: In a decisive move to protect national economic security and ensure the country's financial stability, the government approved a decree-law authorizing regulated borrowing from the Future Generations Fund. Economic experts interviewed by the newspaper agreed this new approach is feasible, saying domestic borrowing from the sovereign wealth fund is a smart and ideal alternative. Head of the Accounting Department at Kuwait University and an economic expert Dr. Sadiq Al-Bassam affirmed that the move to draw from the fund is a strategic financial tool, that prevents Kuwait from accumulating excessive public debt.

He explained that this measure is a double-edged sword, as the positive aspect is the provision of the necessary liquidity to cover budget deficits and finance major development projects without resorting to international markets, while the negative aspect is the potential damage resulting from liquidating essential investment assets with strategic future implications. He cautioned against excessive borrowing from the fund to avoid wasting investment opportunities in international markets and to preserve the sovereign wealth fund's financial solvency. Kuwaiti economic expert Sultan Al- Jazzaf, a member of Kuwait Economic Society, believes that the primary objective of the government in borrowing from the fund is to maintain domestic financial stability, especially given that the hostilities between the US and Israel against Iran could cause financial deficits. He also cited the negative impact of halting oil exports on state revenues.

He said relying on sovereign wealth resources strengthens economic sovereignty and gives decision-makers more flexibility to manage public debt and direct returns toward development projects, with an investment philosophy that serves higher national goals and ensures the state's long-term financial sustainability. He thinks this is a vital step in terms of protecting the financial sovereignty of the country, and shielding it from the unfair conditions and high risks associated with external loans. He added that this measure provides immediate and urgent cash flow, enabling the government to effectively address the crippling economic crises. He said one of the financial advantages of this approach is achieving substantial savings by avoiding the payment of high compound interest to foreign lenders, in addition to developing and revitalizing national assets by directing funds into domestic investments with rewarding and sustainable returns.

He emphasized that this approach aligns with efforts to diversify national income sources by financing major infrastructure development projects that stimulate the economy and create job opportunities for citizens. He stated that the legislative and economic dimensions of modern financial policies under the new law are based on structural pillars, which ensure the sustainable cash of the state and address imbalances in the public budget through well-defined and carefully considered financing channels. He also pointed out that this step addresses the financing gaps that the general budget of the state faces during certain periods, including severe financial pressure. He confirmed that the new legislative intervention provides a fundamental legal solution that allows the opening of a domestic financing channel, granting the government the authority to borrow from the fund in a regulated manner to support the public reserve whenever necessary. He considers the five conditions set by the legislator to be mandatory for regulating the loan and protecting the assets of the fund.

The first condition is the precise determination of the loan amount, second is a statement of the loan purpose and the applicable interest, third is the specification of the loan term and payment schedule (for the loan itself, installments and interest), fourth consists of the clear controls for restructuring or rescheduling the loan, and fifth is the inclusion of any other data and provisions necessary for regulating and utilizing the loan. Former Secretary of Kuwait Transparency Association Dr. Manal Al-Kandari stated that withdrawing from the fund is not a bad decision per se, just as borrowing is not always a good decision. She clarified that the optimal decision depends on the cost of capital, expected interest on the fund's assets, the size of the withdrawal, the sustainability of public finances, and the impact of this decision on the wealth of future generations.

She emphasized that withdrawals from the fund must remain within reasonable limits to preserve the rights of future generations and maintain the fund's leading position. She is hoping that withdrawals from fund will be done along with increased spending on development projects that generate revenue to diversify income sources. She pointed out that the assets of the fund are not idle cash, especially since the Kuwait Investment Authority (KIA) invests these funds globally in stocks, bonds, real estate and infrastructure according to a long-term strategy. She added that the returns of the fund are automatically reinvested as per the law.

By Najeh Bilal Al-Seyassah/Arab Times Staff