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Wednesday , June 29 2022

Kuwait paid debts worth KD 5 billion in 53 months

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KUWAIT CITY, Apr 10: Kuwait paid debts worth about KD 5 billion over a period of 53 months from October 2017 to March 31, 2022, reports Al-Anba daily quoting informed sources.

They explained that the value of the existing public debt locally and internationally during the period from 2021/2022 to 2027/2028 amounted to about KD 3.49 billion. This is distributed between international bonds worth KD 2.44 billion and local bonds worth KD 1.050 billion. From this, about KD 1.62 billion became due in the current fiscal year for local and external bonds, including KD 1.07 billion in foreign bonds that matured on March 20, and the remaining KD 550 million in local bonds.

After paying the dues for the current year, Kuwait is required to pay KD 1.87 billion during the next six fiscal years. In the 2022/2023 fiscal year, it is due to pay for local bonds of KD 240 million. In the 2023/2024 fiscal year, it is due to pay other local bonds of KD 50 million. In the 2024/2025 fiscal year, it will be due to pay local bonds worth KD 160 million. No debts are due on the government in the 2025/2026 fiscal year. After that, Kuwait will have to pay the largest debts, with KD 1.37 billion for international bonds  in 2026/2027 fiscal year, and KD 50 million for local bonds in 2027/2028 fiscal year.

The sources affirmed that the government is adopting the principle of correcting structural errors in the old public debt law, especially linking it to an expiry date, after it expired in October 2017, and with it, the state’s financial management lost one of the main public financial tools.

They indicated that the government, in the draft public debt law, changed the law’s validity period for it to be valid from the time of its adoption without an expiry date, so that the long period of validity of the law supports investor confidence and legal stability.

The sources affirmed that the government bases its defense of this point on the fact that the validity period of public debt laws in most countries does not expire, and is updated when needed, adding that it is necessary for Kuwait not specify the validity period of the law in order to provide confidence to investors and ensure the stability of the legal framework.

They explained that the absence of the Public Debt Law had a negative impact on the state’s public finances. It affected it in five ways, which are:
1. Inability to borrow. Kuwait is one of the few countries in the world that is not legally allowed to borrow at present
2. Paying off debts. Since the Public Debt Law came into effect, the state was forced until last December to repay about KD 4 billion worth debts at a time when the cost of borrowing was very low
3. Financing the deficit. The government was forced to finance the deficit of the last fiscal year 2020/2021 without resorting to public debt instruments.
4. Reducing the projects included in the state’s general budget. In light of the lack of liquidity, there was a tendency to reduce the projects listed in the general budget, which in turn affects the development of the state and the economic wheel.

Due to the need to develop its market, there were delays in implementing the development plans in the absence of the public debt law.

It is noteworthy that the public debt law, as one of the financial instruments, was not absent from the state’s financial policy. The concept of borrowing was not new to Kuwait, especially since it had been borrowing since the late 1980s. The first public debt law was issued in 1987 with a limit of KD 1.4 billion, which was based on the then gross domestic product of KD 5 billion.

In 1989, the debt limit increased to KD 3 billion due to a GDP of KD 7 billion. The maximum ratio of the debt-GDP ratio increased.

In the period from 1990 to 1992, the public debt limit increased to KD 10 billion, due to an average GDP of 50 billion. The debt ratio was 200 percent of GDP. In 2009, the law was extended, while keeping the debt limit at KD 10 billion for a GDP of KD 30 billion.

The sources said the planned risks in terms of borrowing was underestimated , as evidenced from the figures on the volume of debt instruments in many countries and major economies as long-term bonds.

They explained that Britain, for example, issued bonds 61 times with a total value of up to USD 717 billion and an average maturity period of up to 37 years.

The United States of America issued 165 bonds with an average maturity period of 30 years, and a value of USD 2,771 billion. Japan issued 238 bonds with a value of USD 2,346 billion, and an average maturity period of 34 years.

Studies have indicated that the new public debt law will help meet the desires of local banks in dollar deposits, as issuing bonds locally in dollars will utilize the excess of available liquidity and meet the Kuwaiti banking sector’s desire to increase dollar deposits.

The sources said major economies regularly issue bonds with long-term maturities of 30 years or more, but Kuwait is the only Gulf country that has not issued bonds with long-term maturities.

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