KUWAIT- Kuwait's State Audit Bureau said the government has no choice but to borrow to plug a growing deficit, but that it must do so alongside implementing economic reforms.

The coronavirus pandemic and low oil prices have piled pressure on Kuwait's finances and prompted the government to halt an annual transfer of 10% of revenues to the Future Generations Fund, the country's largest reserve that has only been tapped once during the first Gulf War.

The annual transfer will now be made only if Kuwait achieves a budget surplus. After halting the transfer, Kuwait's budget deficit in the fiscal year that ended in March was 3.92 billion dinars ($12.83 billion).

"Given the sensitive conditions in the state's public finances, low oil prices, declining revenues, worsening deficits expected in the fiscal year 2020/2021, and efforts being made to confront the coronavirus pandemic, there is no other way but for the state to provide other new resources, including borrowing, but under the presence of controls and a package of financial, economic and legislative reforms," the audit agency said in a report.

Kuwait's government is unable to raise international debt due to an impasse with parliament over a long-delayed debt law that would raise the country's debt ceiling.

The deficit is plugged from another, much smaller state fund, the General Reserve Fund, where cash and semi-cash resources have been depleted this year.

It added the finance ministry, Kuwait Petroleum Corporation and other entities should coordinate on borrowing "to avoid any damages that may affect the state in general."

Kuwait is due to hold parliamentary elections on Dec. 5.

One of the most pressing issues facing Kuwait's new Emir Sheikh Nawaf al-Ahmad al-Sabah, who took power following the death of the country's ruler in September, is the task of overcoming gridlock on debt legislation. 

($1 = 0.3054 Kuwaiti dinars)

(Reporting by Ahmed Hagagy and Yousef Saba; Editing by Angus MacSwan) ((Yousef.Saba@thomsonreuters.com; +971562166204))