Kuwait shaves KD 1 billion off spending
KIA sees 34% growth in 5 years Economic reforms proving effective
KUWAIT: Kuwait’s financial leadership heralded a positive outlook for the country’s slow growing economy, pointing to a significant reduction in government spending and growth in assets under management as key achievements. Kuwait shaved off “more than KD 1 billion in government expenditure between 2016 and 2017,” said Anas Al-Saleh, Deputy Premier and Finance Minister during the annual Euromoney conference in Kuwait City.
“To reach this result the public financial bodies implemented measures including adjusting cap and growth rate of public spending and treating the waste in this spending, accelerating the process of collecting late state debts, shifting from the annual budget system to the medium-term budget system, limiting the violations of the social allowances, and other measures,” he explained.
Income growing, projects on track
Kuwait sets one of the lowest price per barrel break evens in the region. Its 2017/2018 budget includes a $45 per barrel break even for oil revenue. But forecasts expect Kuwait crude to earn an average $52.50, according to Fitch Ratings. This will bolster the state’s finances and could reduce a projected deficit of KD 7.9 billion (this includes transfers to the Future Generations Fund, part of the country’s sovereign wealth fund).
Kuwait Investment Authority (KIA) also grew its assets by more than 34 percent over the last five years, noted the Finance Minister during the Euromoney conference yesterday. According to Al-Saleh the state’s reserves and assets managed by the KIA are stable. “This is considered the safety vale to our national economy during any crisis and for the future generations, in addition to enhancing state’s high creditworthiness,” he said.
The minister did not divulge the exact size of KIA’s assets under management. The Sovereign Wealth Fund Institute ranks KIA as the world’s fourth-biggest sovereign fund, managing $524 billion. Increased government spending on megaprojects under the New Kuwait 2035 reform program is also expected to bolster the local economy. “Two weeks ago an initial public offering (IPO) of the first partnering project was launched, which is the first phase of the North Zour Refinery Project,” said Al-Saleh. “We are now preparing the tenders for three other partnering projects including the Kabd station for solid waste, the sewage network project at Um Al-Haiman, and the public schools development project,” he noted.
Stable, strong banks
At the same time, reforms of the investment sector are also tracking gains. “The daily average of stock trading value at the Kuwait Boursa hiked by 139 percent during the first eight months of 2017 compared to the same period last year,” the Finance Minister noted, adding that the growth indicated increased confidence and trust by local and international investors in Kuwait’s economy.
Dr Mohammad Y Al-Hashel, Governor of the Central Bank of Kuwait, noted the soundness of Kuwait’s banking sector during the conference, pointing to a slate of reforms intended to protect local banks against global economic uncertainty. “We have enhanced our capital adequacy regime by setting out higher and better quality capital. As highlighted in our flagship Financial Stability Report for 2016, CAR of the banking industry stands at 18.6%, well above the Basel benchmark. We have also put up additional capital requirements, up to 2%, for our systemically important banks,” Al-Hashel said.
Kuwaiti banks stand at 10.1%, substantially higher than the 3% global benchmark where the CBK strengthened banks’ capacity to withstand liquidity stress and to make their funding structure more stable by implementing Liquidity Coverage Ratio and Net Stable Funding Ratio. He added that the CBK improved, with banks’ nonperforming loan ratio steadily declining to reach 2.2%, a historic low. Also ensured the justified buildup of sufficient provisions; consequently, coverage ratio has climbed to a record high of 237%.
The Central Bank government also called for further reform: “Progress on many structural fronts is needed; further rationalizing expenditures, increasing non-oil revenues, reforming the labor market, increasing the role of the private sector and in general diversifying the economy are some key areas that would continue to require unremitting attention.”
Investment legislation
Kuwait’s parliament is likely to approve a law to extend the country’s borrowing limits, enabling 30-year debt issues, a senior finance ministry official said yesterday. The law would allow Kuwait to increase its debt ceiling to KD 25 billion ($83 billion) from 10 billion currently. It would also allow the Gulf state to issue debt instruments with maturities of up to 30 years, from a current limit of 10 years.
“We’re optimistic that the parliament will pass the law as it is, it’s a matter of getting it through the process,” Abdulaziz Al-Mulla, head of the debt management department at the ministry of finance, said during a Euromoney conference. Kuwait issued a debut $8 billion international bond in March with maturities of five and 10 years. The government decided to extend its borrowing limit to 30 years after noting interest from pension and insurance funds for long-term paper when the bond sale was presented to international investors, said Al-Mulla.
“We believe time is a very important aspect, as we need to finance this fiscal year, from the beginning of April to the end of March 2018, and as we all know there are windows in the market,” he added, without specifying when a new bond issue is likely. Kuwait is also working on a law that would allow the sovereign to issue sukuk, said Al-Mulla, adding he did not know when such a law would be in place. The current legal framework does not allow the government to raise financing through Islamic bonds.
Gulf Bank successfully concluded its seventh consecutive lead sponsorship of the Euromoney Conference which took place yesterday under the theme of ‘New Kuwait - Financial Challenge or Financing Opportunity?’ Held in partnership with the Ministry of Finance at the JW Marriott, this financial conference gathered together policy makers, financiers, and investors to explore the Kuwait National Development Plan, commonly referred to as the New Kuwait 2035, and the changes it will bring to Kuwait’s economy and the nation as a whole.
The opening session included remarks from Anas AlSaleh, Deputy Prime Minister and Minister of Finance, as well as Dr. Mohammed Al-Hashel, Governor of the Central Bank of Kuwait. Omar Kutayba Alghanim, Chairman of Gulf Bank and CEO of Alghanim Industries, participated in the morning’s first interview session with Kuwaiti banks.
Discussing the New Kuwait plan, Alghanim said: “I want what’s best for our country. In order to build the economy envisaged by the New Kuwait strategy, we will need financial capital and a banking system that is ready, willing, and able to support on multiple fronts. We must also have the right human capital in place to help realize the plan.”
Highlighting the complexities in implementing the New Kuwait vision, Alghanim noted: “It’s one thing to have an ambitious plan, but it’s quite another to implement it. As a businessman, I know how hard it is to drive change in a single company, it’s obviously much harder to change an entire country. It requires hard work, determination, and a real sense of urgency. It’s also critical to have clear metrics for measurability and accountability, as well as transparent and detailed reporting on the plan’s progress.”
Noting the importance of human capital in delivering the plan, Alghanim remarked: “Education is greatest challenge we face as a nation. Kuwait’s spending per student is far greater than per student spending in many developed countries like Germany, Canada, United Kingdom, and France.
But, while our spending is among the highest, our output isn’t. Put simply, we’re not getting our required rate of return - in fact, strictly on a yield basis, we have a worse rate of return than most of the world when it comes to education spending. We must shift the focus of our educational system to one that knows how to inspire, motivate, and empower students. Critical thinking skills are areas in which we must improve. We must also address the issue of female labor participation, as our gender participation gap is still high. At our companies, we place great importance on ensuring our workplaces empower women and offer opportunities for them to advance in their careers.”
Alghanim concluded by affirming his commitment to Kuwait: “At Gulf Bank and Alghanim Industries, we are fully committed to helping the next generation. Our in-house programs ensure our employees have the training and support they need to advance in their careers. On the social responsibility front, we also have quite a number of training, education, and mentorship programs, which help youth develop the social and intellectual skills needed to be successful in the future.”
The Euromoney Conference is the world’s leading organizer of conferences for cross-border investment and capital markets for portfolio and direct investors, financial intermediaries, corporations, governments, banks and financial institutions. The annual Euromoney Conference provides Gulf Bank an unparalleled platform to discuss Kuwait’s fiscal, monetary and economic diversification strategy.