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Liquidity crisis forces govt institutions to take unusual steps

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KUWAIT CITY, Nov 20: The figures which have been published by the Kuwaiti Ministry of Finance show a decrease in the current government account profits by about 91.5% at the end of fiscal 2020-2021 which is about 306,000 dinars, compared to 3.6 million dinars in 2019-2020, reports Al- Qabas daily. This situation, the sources say, is due to the decline in current account profits revenues because of intense withdrawals to finance various operations and provide liquidity to spend on items mentioned in the general budget, at a time when the revenues have been significantly declining which is directly linked to the downward trend in the oil prices and the impact of the repercussions of the Covid-19 pandemic.

The same sources indicated the liquidity crisis has forced some government institutions to take unusual measures after the Ministry of Finance directed liquidity to only the necessary items in the budget, especially salaries and subsidies, which necessitated some agencies to increase the frequency of withdrawals from their bank accounts to finance their operations. With oil prices stabilizing at relatively moderate levels in recent months — above $80 a barrel — sources expect the bank balances to ‘bloat’ again in the next few months and the government account balances to grow again by the end fiscal 2021-2022.

According to figures recently published by the Central Bank of Kuwait, the deposits by government institutions saw an increase of 360 million dinars in August, for the first time since the beginning of this year, after being subjected to monthly withdrawals since the beginning of the year, either for reasons related to changing the investment strategy of some government institutions or because of the need to finance some of their projects. The total deposits in local banks jumped by 492 million dinars to 44.3 billion dinars, with a share of 7.3 billion dinars for government deposits, compared to 35 billion dinars for private sector deposits. Since the budget of the last fiscal year recorded a historical figure in the deficit, which amounted was about 10.7 billion dinars, government agencies have mobilized under pressure from the Ministry of Finance, and they have begun to take strict measures, both at the level of providing liquidity, or at the level of rationalizing spending on the various items in the budget, including postponing considering requests to increase the capital of any of the parties during the current time.

This is in addition to postponing many payments to contractors, while the exchange operations were limited to salaries and necessary items only. When the crisis worsened fiscal the period of low oil prices prolonged, the government resorted to several solutions during the last period to maintain liquidity levels in the general reserve sufficient to pay the salaries and urgent obligations month by month, whether by exchanging assets between the general reserve and “generations” or by stopping the deduction of a percentage 10% of the oil revenues go to the Future Generations Fund, but all of these solutions remain temporary and not guaranteed in the event that laws supporting liquidity and transit towards financial sustainability are not passed.