Kuwait central bank calls for reforms to ensure stability

The governor of Kuwait’s apex bank stated in a recent announcement that the country requires urgent reforms to set its national finances on a path towards greater sustainability, indicating that current monetary tools are not sufficient to surmount the structural challenges.

“There is an urgent need for (economic) reform, and all parties, especially the executive and legislative authority, should work to address all imbalances (in the Kuwaiti economy),” Muhammad Al-Hashel said in a press conference.

Before now, the central bank had implemented an array of stimulus measures to curb the economic impact of the COVID-19 health crisis and the crumbling oil prices on general economy of the country.

Some of the said measures include cutting discount rates to record low level, reducing liquidity requirements for lenders, raising maximum credit and lowering cost of risk to ensure banks can lend more.

Though the liquidity levels at Kuwaiti banks remain great and profitability has stayed on course, the governor of the central bank has warned against discontinuing the stimulus packages too early, stating that this may cause many borrowers to default on their loans.

“While oil market conditions have improved, and despite the adoption of a conservative oil price of $30 per barrel in the 2020-2021 fiscal year budget, macro-financial and economic reforms remain essential for Kuwait’s future,” a report released by the bank stated.

Kuwait is now facing liquidity risks as parliament refuses to authorize government to borrow. Also, the country has not issued international debt instruments since 2017, turning to asset swaps and other measures to finance spending.

 to finance spending due to the expiration of the Public Debt Law, and instead resorted to alternative sources of financing, such as an asset swap between the huge sovereign wealth fund and the treasury.

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