Kuwait looks to Future Generations Fund for liquidity amid war headwinds

Kuwait’s government can now borrow directly from its Future Generations Fund (FGF), a move it has used only once before in 1990, Arab News reports. The new change was codified in a government decree issued on 1 September, amending the law governing the country’s sovereign wealth fund, the Kuwait Investment Authority (KIA).

The amendments will open a new liquidity lever for the public treasury, alongside debt markets and the General Reserves Fund (GRF).

The borrowing comes with guardrails. Annual loans are capped at 100% of the FGF’s five-year average returns, and the outstanding balance can’t exceed 10% of net asset value. The borrowings are repayable as and when the budget swings to surplus, and are impossible to write off without new legislation.

The two pots, and the sovereign umbrella: Kuwait’s sovereign wealth fund KIA manages more than USD 1 tn across two sub-funds built for opposite jobs. The GRF is historically Kuwait’s fiscal shock absorber, drawn down routinely to cover deficits and most recently through the 2020-22 oil crash. The FGF was built as its opposite: 10% of state revenue flows into it every year by law for a mandate focused on long-term savings and investments, and any withdrawal for budget purposes requires its own fresh legislation, and fiscal rules tightened a few years ago to restrict transfers between the two funds to surplus years only.

Kuwait has historically underutilized its potential in accessing debt. The country has solid sovereign ratings from credit rating agencies and its debt-to-GDP ratio is the lowest in the GCC at about 22% now, against Bahrain’s 152%, Qatar’s 43, Oman’s 33%, Saudi’s 32%, and UAE’s 31%, according to IMF data.

That’s why Kuwait has been making moves recently to improve its debt optionality. The government finally passed the public debt law in March 2025, raising its debt ceiling to KWD 30 bn (c. USD 97 bn), an equivalent of some 60% of the country’s GDP in 2025. This effectively allowed the government to resume issuing sovereign bonds after an eight-year hiatus, raising USD 11.3 bn in September 2025 and USD 4.3 bn later in July of this year.

IN CONTEXT- Kuwait reached the KWD 10 bn ceiling stipulated in the earlier law in 2017, and the Parliament had killed all attempts to raise the ceiling since then until it was dissolved in 2024. Kuwait has been on a drive to reform economic policies since the dissolution of the Parliament, where several regulatory changes needed to push diversification efforts, like the public-private partnership bill, were stalled due to political deadlock.

Why now: Kuwait’s FY 2025-26 budget closed with a KWD 7.1 bn (USD 22.9 bn) deficit — 15% of GDP, the country’s widest shortfall since the Covid pandemic and almost double what the IMF expected. Revenues fell 25% y-o-y, driven almost entirely by oil revenues collapsing 30% to KWD 13.6 bn (USD 43.8 bn), 11% below budget. Average realized crude prices held near the USD 69/bbl budget assumption, but the miss was on volume as the Hormuz closure choked exports. The current outlook looks even worse: BMI now projects an 8.1% GDP contraction in 2026 and a deficit at 18.9% of GDP in FY 2026-27 — the widest in the GCC. With that outlook and Kuwait already drawing big sums from its debt ceiling since the passage of the debt law last year, the FGF is emerging as an emergency backdrop.

REMEMBER- SWF Global flagged this exact scenario in a note published in the war’s early weeks, warning that a prolonged conflict could pull Gulf sovereign funds into plugging state budget gaps. Kuwait just became the test case.