Audit flags liquidity risks

KUWAIT CITY, Nov 21: In a stark warning, the Audit Bureau has raised concerns about a looming liquidity crisis that could jeopardize the General Organization for Social Insurance’s ability to meet its commitments and entitlements. The bureau’s report on the examination and review of independent bodies’ budgets and final accounts for the fiscal year 2022/2023 highlights the potential decrease in cash liquidity at the institution, particularly if the public treasury fails to fulfill its financial obligations.

As of March 31, 2023, the institution’s cash liquidity stands at 1,458,682,211 dinars, accounting for 3.37% of its total assets of 43,284,338,605 dinars. The report underscores that the institution’s capacity to maintain sufficient cash flows for insurance, investments, and other administrative obligations could be compromised. There is a looming risk of a negative amount, projected at 423,710,431 dinars by March 31, 2024, should the state’s public treasury fail to meet its financial commitments, significantly elevating liquidity risks.

The Audit Bureau emphasizes the need to reconsider the investment asset distribution strategy, especially the cash percentage ranging from 0% to 20%, as prepared by the American asset management company Mercer. This reassessment aims to ensure that the institution maintains adequate cash liquidity without exposing itself to unnecessary risks.

Calling for immediate action, the Audit Bureau stresses the importance of maintaining positive cash flows to fulfill obligations. Coordination with relevant authorities is deemed necessary to guarantee that the state’s public treasury fulfills its financial responsibilities toward the institution. The report also sheds light on hypothetical cash flow statements for the institution’s future obligations, based on worst-case scenarios. These assumptions include the Ministry of Finance’s failure to meet its dues and the continuation of a general economic recession. With cumulative monthly dues and contributions to the public treasury reaching 2,532,852,911 dinars by March 31, 2023, any failure to meet these obligations may impact the institution’s cash flow and limit available investment opportunities, affecting the targeted return on the investment portfolio In response, the General Organization for Social Insurance emphasizes its commitment to maintaining sufficient cash liquidity to meet obligations without exposure to risks.

The institution updates its investment commitments daily, ensuring correct and robust target percentages, contingent on the state’s public treasury meeting its financial obligations. Addressing concerns raised by the Audit Bureau, the institution highlights the normal foundations of its asset distribution strategy, clarifying that the nonpayment of dues by the public treasury is considered an exceptional circumstance. The institution coordinates continuously with the public treasury, confirming its commitment to pay all dues.

By Mahmoud Shendi
Al-Seyassah/Arab Times Staff