Stimulus Check – Kuwait central bank chief calls for reforms to ensure stability
KUWAIT, July 26 (Reuters) – Kuwait needs urgent reforms to put its finances on a more sustainable footing, as monetary tools are not sufficient to address structural challenges, the governor of the central bank said on Monday.
“There is an urgent need for economic reforms, and all parties, especially the executive and legislative authority, must work to address all imbalances”, Mohammad al-Hashel told a conference. He didn’t mention any specific measures but said reforms should aim to reduce Kuwait’s dependence on oil.
The central bank last year introduced a wide range of stimulus measures to soften the impact of the COVID-19 pandemic, and record low oil prices, on the banking sector and the wider economy.
These included the reduction of a key discount rate twice to a historic low, relaxing banks’ liquidity requirements, bolstering banks’ lending capacity by enhancing maximum credit limits and reducing risk weights.
The governor said on Monday Kuwaiti banks’ liquidity was healthy and profitability remained decent despite the economic challenges posed by the coronavirus crisis, but cautioned against withdrawing stimulus measures too abruptly as this could lead to borrower’s defaults.
Non-performing loans increased by 43% last year, originating mostly from the real estate sector, though the non-performing loan ratio remained healthy at 2%, the central bank said in a report published on Monday.
“While oil market conditions have improved, and despite the conservative $30/bbl price assumed in the fiscal year 20/21 budget, fiscal and macroeconomic reforms are still essential for Kuwait’s outlook”, it said.
Kuwait faces liquidity risks largely because parliament has not authorised government borrowing due to a standoff.
It has not issued international debt since 2017 to finance spending as a public debt law expired and has instead used alternative sources of funding such as asset swaps between its huge sovereign wealth fund and the treasury.
Ratings agency S&P this month cut the rating of the oil-rich Gulf state by one notch due to the lack of a funding strategy to finance its central government deficit, estimated at 33% of gross domestic product in the fiscal year that ended in March. read more
Reporting by Ahmed Hagagay and Davide Barbuscia
Editing by David Holmes
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