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Tuesday , February 25 2020

‘Stop buying fur coats’

Before going into today’s article, let us narrate the following funny story: A man went to a bank to report the loss of his wife’s ATM card. The card was lost six months ago.

When the banker asked the man why he was reporting the loss after six months, the man replied by saying the person whoever is using the card is spending less than what his wife was spending.

He said he thought of reporting the loss now because the person who is using the card is now spending same like his wife.

A controversy is brewing among financial experts on the best method of containing the state budget deficit over the next years. Some are of the opinion that this can be done by borrowing from banks or liquidating some state investments and using the proceeds to address the deficit or stop the government appetite for liquidity, which works out to 25 billion dinars, or $75 billion. This is a huge sum of money for the size of a state as ours.

The Central Bank favors one of the two options. The bank preferred borrowing and not liquidating investments because the cost of borrowing is much lower than our income from investments.

A statement given by former Kuwait Oil Minister Essam Al-Marzouq to Al-Qabas on March 26, 2017, said the price of a barrel in the approved budget was estimated at $45, while the parity rate of the government was $70 per barrel, which amounted to $25 a few years ago, and then rose to 50, and now stands at $70, which means the state has to sell the barrel of oil at this price to be able to meet the approved budget without saving anything which is not possible now in terms of the current oil prices.

The difference between the parity rate and the prevailing price is the deficit in the state budget, which is likely to rise in light of all this unreasonable extravagant spending.

The 2017-2018 budget suffered a huge fiscal deficit for the third year in a row due to decline in oil prices, and the expected revenues were estimated at 13 billion dinars, or about $44 billion, when the expected state expenditure is 20 billion dinars or more than $60 billion, and the difference between them is the financial deficit which should be covered by borrowing or liquidating investments.

The preference between the two proposals is similar to the story of a man whose wife asked him to buy her a very expensive fur coat, and because he did not have any liquid money at the time to pay for the expensive coat, he contacted a number of his friends asking them what he should do.

He asked if he should sell some of the shares to buy the coat or mortgage them (shares) and borrow from the bank.

When the man found himself confused and at a loss amid different suggestions given by his friends, he complained to the owner of the coffee shop, which he usually visits, who advised him not to buy the coat.

If we stopped buying these expensive coats for a few years, our financial conditions would automatically change.

email: habibi.enta1@gmail.com

By Ahmad Al-Sarraf



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