Kuwait has tripled the maximum loan it can get from local and global markets within the much-anticipated debt law it approved last month.
An Emiri decree set the new debt ceiling at 30 billion Kuwaiti dinars ($99 billion) in the new law which replaced a previous debt law with a ceiling of KWD10 billion ($33 billion).
The new law allows the government to borrow up to $99 billion over a period of 50 years to fund budget deficits and infrastructure projects beyond withdrawal from the Gulf state’s financial reserves abroad.
“The Emiri decree replaced the debt law which expired on 4 October 2017 and which set the loan ceiling at KWD10 billion…the new ceiling is KWD30 billion,” said Kuwait’s daily Aljardia, which published the Emiri decree, citing the official gazette.
The approval of the “financing and liquidity” law after eight years of government-parliament haggling coincides with widening budget deficits due to spiraling spending on wages to public servants and subsidies to citizens.
While the law will enable the OPEC member to shun depleting its overseas reserves, analysts warn against the improper use of the loans.
“This law allows Kuwait to shore up the fiscal shortfall and fund development projects if oil revenues decline without the need to directly withdraw from the general reserves,” said Mohammed Al-Asumi, a Dubai-based economic adviser.
“But it could be harmful if it is used to cover salaries and other parts of the current expenditure…there is also a risk of excessive reliance on borrowing.”
Kuwaiti Finance Minister Noura Al-Fassam said last week the debt law gives the emirate greater flexibility by allowing it to tap local and global markets.
“This reflects a strategic approach to keep pace with global economic developments and ensuring the sustainability of the state’s public finances. This law is part of the government’s efforts to enhance financial stability and support economic development in line with Kuwait’s Vision 2035,” she said.
Faisal Al-Muzaini, Director of the Public Debt Management Department at the Ministry of Finance, said the new law reflects the government’s commitment to adopting a sustainable financial approach that balances the need to finance development projects and ensure long-term financial sustainability.
In a weekend report, National Bank of Kuwait (NBK) said the debt law will increase the options available to the government to finance current and future fiscal deficits beyond drawing down reserves at the General Reserve Fund, the government’s cash flow account.
“Moreover, the new law will facilitate the establishment of a sovereign yield reference curve and catalyse bond issuance and the debt markets more broadly going forward….it is also an important step in stimulating capital project financing avenues and should help in strengthening Kuwait’s sovereign credit rating,” it said.
Kuwait’s last foray in the bond markets was in 2017 when it raised about KWD 2.5 billion ($8 billion) in five and 10-year Eurobonds.
In 2021, Kuwait was reported by local newspapers to have withdrawn nearly KWD 7.5 billion ($24.7 billion) from the Future Generation Fund to cover a large budget deficit during fiscal year 2021-2022.
Kuwait’s think-tank Al-Shal Centre said last week that borrowing would not resolve the Emirate’s fiscal problems.
“It does not matter whether we support or oppose the debt law…but providing liquidity to a government with expenditures above 50 percent of GDP, and with an efficiency rate of 0.54, compared to a global average of 37 per cent of GDP with an efficiency rate of 0.74, will only deepen the financial imbalance,” it said.
(Reporting by Nadim Kawach; Editing by Anoop Menon)
(anoop.menon@lseg.com)
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