Central Bank tables proposal to boost Kuwait’s coronavirus-hit economy

The Central Bank of Kuwait.

KUWAIT: A proposal to boost the coronavirus-impacted local economy has been tabled during the most recent cabinet meeting, Central Bank of Kuwait (CBK) Governor Dr Mohammad Al-Hashel said late Thursday. The twofold proposal comprises eased financing for SMEs and introduces the state as a guarantor for the aforementioned funding, noted Hashel. the CBK chair’s remarks came during a press conference following an online extraordinary cabinet meeting to discuss measures to address the economic ramifications of the novel coronavirus (COVID-19) earlier in the day.

The higher steering committee to stimulate the economy has examined 35 related experiments around the world; 40 percent of which concluded that government intervention should come in the shape of an easy-loaner/guarantor, he pointed out. Hashel is heading the committee. The proposal is designed to align with nature of the local economy and the state’s legal requirements; conditioned with banks’ liquidity abundance, attractive interest rates for both the lender and lent, and stimulating banks to provide credit, he explained. Beneficiaries of the proposed stimulus package would be companies and SMEs impacted by consequences of COVID-19, with the committee reducing discount rate and value of loans; offering up to KD 250,000 ($825,000) in soft loans for every owner of a small or medium size enterprise (SME), who should pay back the loan in four years, he noted.

Opportunities for the state’s economy and local banks, as well as the nonexistence of direct impact on public funds are some of the proposal’s advantages, Hashel said, noting that based on reserved scenarios, the program’s cost would not exceed 10 percent of the sum amount presented by the banks to the private sector, as it represents one percent of the GDP, compared to 15 percent offered within similar programs in other countries.Other features of the CBK proposal include “risk-sharing” between the state and banks, which, according to Hashel, enables the state to focus on its role, which would result in mitigating inflationary pressures.

Such adjusted regulatory instructions and other macro prudential policy tools would empower the banks’ ability to perform their vital role, provide financing to productive economic sectors, and offer liquidity to help businesses continue operations, he added.The CBK instructions issued include a reduction in liquidity requirements such as the liquidity coverage ratio, the net stable funding ratio, and the regulatory liquidity ratio. In addition, they increase the maximum limits for the negative cumulative mismatch and the maximum lending limits to providing financing. Locally, the CBK governor predicted that impacts of measures taken in the past three months would “hit the local economy hard,” which requires abiding by health authorities’ guidelines “in order to steer clear of a setback.”

Based on CBK surveys, retail stores’ clientele plummeted 75 percent; 45 percent of retail shops were forced to suspend activity, while 64 percent of Kuwait’s population are in a state of uncertainty and 44 percent of real estate owners lowered their monthly rent incomes, Al-Hashel pointed out. That, in addition to SMEs and major companies’ 42-percent revenue crunch, would force curtail redundancies in terms of employees, leading to shrinkage in Kuwait’s non-oil GDP. On the regional level, Hashel underlined that countries are fighting on two fronts, with the human race struggling to choose between saving lives or saving livelihoods.

On the global scale, Hashel said that the world is witnessing an unprecedented pandemic amid expectations of a looming global recession; the largest since the Great Depression, pointing out that countries responded potently to the crisis by spending about 15 percent of the global GDP, with estimated stimulus packages’ value of $11 trillion. Earlier in the day, the cabinet hoped the stimulus measures would contribute to addressing economic impacts caused by COVID-19, stressing that the private sector should continue its pivotal role in achieving New Kuwait’s 2035 Vision. —KUNA

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