Dividends and Kuwait scrambles to boost coffers with plans to issue billions in public debt

Ever since OPEC raised prices of oil in the 1970’s the easiest job in the Middle East was the finance minister. Every year revenues increased and rarely did the Finance Minister have to say no to a project. Money came in, the people were reasonably happy and lifestyles could be enhanced.

COVID happened and demand for oil dropped drastically, then Saudi Arabia and Russia were in a price war to the bottom, oil revenues for oil producing countries and companies dropped and the unthinkable happened. The job of the Finance Minister turned into one of the toughest in the land.

In an article by Ahmed Hagagy of Reuters, Kuwait plans to issue between $17.7 billion and $22.1 billion in public debt by the end of fiscal year ending March 2021.

The country is rapidly depleting its General Reserve Fund (GRF) to plug a budget deficit. Kuwait has to approved a new law to allow budget deficits.

The International Monetary Fund believes the Kuwait deficit will be 11% of gross domestic product this year compared to a 4.8% surplus last year.

Kuwait does a reserve fund called Future Generations Fund which has been growing with annual 10% of state revenues, it would save money if the wording was changed to conditional on budget surpluses. The conditional words would save the government $3 billion in the current year.

Linking to dividend paying stocks, if you are a certain age you will remember or heard about gas line up and when prices of oil jumped to a $1.00 a gallon. This was a big switch because most people spent less than $10 at the pump, depending on how much you drove $5.00 might be good enough. The higher prices from OPEC meant a change in the price of oil and gas, but eventually people adjusted to it. During the stories the wealth of the Middle East was allowed to seen, it is fitting that the basic rule in business is revenues must be greater than expenses.

There are more questions than answers, till the next time – to raising questions.

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