Reserves touched to offset budget deficit – ‘Law to raise loans in limbo’

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KUWAIT CITY, Oct 18: Withdrawals from the public reserve fund are expected to increase this month and the coming months in order to cover the budget deficit, following the expiry of the law that allows the government to raise loans and with the wait for a new law to be passed, reports Al-Qabas daily quoting informed sources.

They explained that the public debt law, which was first enforced in October 1987, expired on Oct 4, 2017.

In August and September, Ministry of Finance managed to issue condensed bonds prior to the end of the period of the law.

Those condensed bonds were not included in the plan but the ministry resorted to it in order to seize the opportunity before the expiry date.

The sources revealed that the total payable amount of the issued bonds during 2017/2018 fiscal year will reach KD 425 million, adding that Ministry of Finance will not be able to renew the payable date unless a new law is issued or the old law is renewed.

They explained that the first payable date following the expiry of the law was Oct 11, 2017 with a total amount of KD 100 million.

The next payable date is Wednesday, Oct 18. The remaining KD 225 million will become due in 2018 on the following dates — KD 10 million due to be paid on Feb 7, 2018, KD 100 million due on March 7, 2018 and KD 25 million due on March 14, 2018. The sources went on to explain that a decree was issued for the Law No. 50/1987, which allowed the government to obtain public loans.

Article 1 stipulates a period of ten years for the government to contract loans that do not exceed KD 1.4 million via the issuance of treasury bonds and bearer bonds or direct loans from financial bodies. It has assigned Ministry of Finance to carry out the relevant procedures concerning the contracting. In 1991, Law No. 7/1991 was issued to increase the limit of loan to KD 10 billion. It allowed the government to seek loans from local and international financial institutions.

In 2009, Law No. 3/2009 was issued which extended the period to October 2017. Article No. 3 of the law allowed Ministry of Finance to meet its commitments towards other state bodies and institutions that have independent budgets by issuing bonds or “sukuk” (Islamic bonds), and that the interest is to be decided by Ministry of Finance.

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