KUWAIT: Kuwait’s economy suffers from glaring structural errors induced by accumulations that have stalled development, Finance Ministry Undersecretary Khalifa Hamada said yesterday. Hamada, speaking on behalf of Finance Minister and acting oil minister Anas Al-Saleh at the Euromoney 2016 Conference, said that these glitches are related to governmental procedures, adding that bureaucracy has encumbered economic production.
Moreover, Hamada noted that the flaws are also the result of irregularities in the job market, saying that the government has struggled to provide employment for nationals. Speaking on the primary factor that has impeded growth, Hamada said that the nation’s budget heavily relies on oil revenues, an issue that if not remedied, would be detrimental to the country’s economy. He also noted that public spending should center on efforts to maximize production capacity to ensure sustained development.
Furthermore, Hamada made a correlation between financial reforms and economic growth, as he listed numerous factors that could help eliminate any hindrances to growth, chiefly, the addition of non-oil revenues and to rationalize public spending, measures he described as the two focal points of financial reforms.
On the government’s role in developing the economy, he said that it should monitor economic procedures and enhance collaboration with the private sector, which would result in a robust market that will keep consumers satisfied. Hamada also urged the private sector to contribute to economic growth through public projects and increased cooperation with the government sector, adding that citizens should own a 40 percent share of these projects. Elaborating on reforms needed to prop up the economy, he said that they should also include administrative and institutional ones that will increase efficiency and lure local and foreign investment.
Meanwhile, Governor of the Central Bank of Kuwait (CBK) Dr Mohammad Al-Hashel said local banks have hitherto been able to withstand the oil market’s recent slump, but this resilience is not “infinite”.
Hashel said that the lackluster economy will prove to be a burden to local banks, despite CBK’s strenuous efforts to maintain monetary and financial stability. Moreover, Hashel said that financial regulations are not adequate as they are geared towards the economy as a whole, adding that local banks are merely a component of the country’s economy and stability there does not equate to economic growth.
Speaking on Kuwait’s low public debt and financial buffers, he noted that they provide an opportunity for progressive economic reforms. He also added that recent stability of oil prices is not a reason for complacency, as the main goal remains for Kuwait to curb its dependence on oil revenues. On the need for economic reforms, he said that it is the main proviso required for increasing non-oil revenues and producing a multi-faceted economy that provides ample opportunities for employment.
Furthermore, Hashel said that local banks have remained stable, despite a challenging economic environment, noting that banks’ non-performing loan ratio has continued its steady decline to reach an all-time low of 2.4 percent. Similarly, he pointed out that the coverage ratio has climbed to a record high of 204 percent and that banks are well above the minimum benchmark of 100 percent liquidity needed by the year 2019, adding that banks’ overall leverage ratio of 9.7 percent is significantly higher than the 3 percent global benchmark.
The governor cited these statistics as a testament to CBK’s commitment to financial stability, as “banks’ ability to support economic activity in Kuwait has not been restricted, rather, our banks will continue to lead despite a challenging macro environment,” he said. Hashel also asserted that CBK is leaving no stone unturned in upgrading its regulatory regime and enhancing its supervisory focus, given how limited financial regulations can be to address macroeconomic and structural issues.
Ali Mousa Al-Mousa, chairman of Commercial Bank of Kuwait, said the government cannot issue a sovereign bond without the creation of a secondary debt market first. Kuwait plans to issue up to KD 3 billion ($10 billion) in US dollar-denominated bonds and sukuk in international markets to help plug its budget deficit for the current 2016-17 fiscal year, finance minister Saleh said in July.
Meanwhile, Kuwait Direct Investment Promotion Authority (KDIPA) Director General Sheikh Dr Meshaal Jaber Al-Ahmad Al-Sabah said KDIPA has recorded more than $2.2 billion in foreign direct investments (FDI) by renowned global companies since it started accepting applications in early 2015. He said these companies have been approved in the services sector focusing on ICT and energy activities, and hail from many different geographic regions. He added that this has led to the creation of more than 1,000 jobs for Kuwaiti nationals while supporting the local economy.
In order to maintain Kuwait’ attractiveness as a potential investment hub, KDIPA is currently leading two national initiatives aiming to further improve the business climate and enhance competitiveness, he said. The first initiative is leading the Permanent Committee for Streamlining Business Environment in Kuwait (PCK), based on the Cabinet’s decision and with membership of nine concerned government entities, Sheikh Meshaal said.
The second initiative, launched in March 2016, aims to enhance Kuwait’s competitiveness towards a more innovation driven economy in coordination with various stakeholders, he said. He considered the conference as a good opportunity for discussing key topics and providing the opportunity to exchange knowledge and deepen understanding of core economic issues faced by policymakers, regulators, investors and corporate executives.
Separately, Kuwait’s stock exchange will introduce a limit of 20 percent for the maximum daily rise or fall of individual stocks by November, Khaled Abdulrazzaq Al-Khaled, chief executive of Boursa Kuwait, which operates the exchange, said yesterday. The exchange will also introduce a circuit breaker mechanism providing for brief halts in trade with every move of 5 percent, he added. The new rules will replace the current range of limits for stock movements; these limits vary depending on the level of stock prices. Boursa Kuwait is working with the regulator to begin establishing a secondary market for small and medium-sized enterprises that would open in 2017, Khaled told reporters. – Agencies