Kuwait to pay $3.5 bln to int’l banks, part of $8 billion loan

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Second tranche due in 2027

KUWAIT CITY, Jan 20: Kuwait is preparing to repay, in March 2022, the first tranche of $8 billion loan at an interest rate of 2.75% that the country borrowed in 2017 from international banks. The value of the first tranche set for 5 years is $3.5 billion, while the second tranche $4.5 billion of the loan will be due in 2027, reports Al- Jarida daily. According to the current economic and financial factors, Kuwait does not face any problem in paying the full amount of the first tranche or the loan, or even double its value, but the issue is deeper than just the ability to repay the debt, especially in light of the pledge given by the Minister of Finance to work on approving the public debt law in parallel. With the support and perhaps promotion of credit rating institutions, most recently “Standard & Poor’s” last week, to address the issue of the budget financing crisis through debt, and even consider what is known as the national dialogue as paving a way to pass the Public Debt Law.

Analytical
With an analytical look at the aspects of disbursement of $8 billion (about 2.3 billion dinars) that Kuwait borrowed in 2017 “we find that it was used to finance the current expenditures in the general budget, i.e. (salaries – subsidies – tenders) without any financial or economic return to the state, and this behavior in dealing with funds derived from borrowing from banks is what reinforces fears that borrowing through public debt will be a means to continue financing the current expenditures in the budget, which need deep restructuring, not to mention the ability to direct the borrowing funds to capital projects that achieve treatments Economic, such as job opportunities for Kuwaiti youth, and financial, such as tax returns to the public treasury, not to pay annual rising obligations, most of which have no economic or financial return from it.

Perhaps the source of the repayment of the first tranche funds of the Kuwait international loan in 2017 indicates that the borrowing amount was spent without economic or financial returns. The repayment will be made through the returns of the investments of the Kuwait Investment Authority, such as the interests of bank deposits, bonds, sukuk, or returns on shares, funds, foreign real estate, and others. Therefore, this way foretells two things, the first is that borrowing funds did not achieve any returns that finance the repayment because they were spent in aspects of current spending, not the supposed investment, and the second is that the funds of the Future Generations Reserve Fund were indirectly affected.

There is no doubt that the statement of the Minister of Finance, Abdul Wahhab Al-Rasheed, on his “Twitter” account regarding the necessity of developing the economic plan in parallel with the approval of the Public Debt Law, carries many positive intentions and trends, but it puts it in front of a challenge with the various financial and economic trends in the country, Looking at the latest Standard & Poor’s credit rating report issued last week, it can be said, in principle that any credit rating must be dealt with in its context without exaggeration or underestimation the economic crises at a specific time rather than a deep study of the state of the economy, and perhaps the Kuwaiti economic crises have become chronic and do not need classification from any international institutions, as much as they need effective and rapid treatment.

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