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Kuwait to borrow more, raise debt ceiling, hike investment
April 8, 2017, 4:20 pm
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Kuwait will continue to secure additional financing from international and domestic markets through conventional and sukuk offerings, said the country’s Deputy Prime Minister and Minister of Finance Anas Khalid Al-Saleh.

Speaking on the first day of the Kuwait Financial Forum, the flagship annual event organized by Kuwait Banking Association, Minister Al-Saleh said that financing the country’s budget deficits through debt instruments was part of clearly defined and well-designed strategy that supports the government’s ongoing economic and financial reforms.

Clarifying the government’s plans for issuing future debt instruments, Minister Al-Saleh said, “Kuwait plans to double its public debt ceiling from the current KD10 billion to 20 billion and raise the maximum maturity limit for its bonds from its present 10 years to 30 years, as well as issue sukuk debt instruments in additional to conventional bonds.”

Data from the Central Bank shows that domestic conventional bonds and tawarruq’s worth KD2.2 billion had been issued till the end of financial year 2016-2017. The debt issues, with maturities ranging from one and five years and carrying rates between 1.25 and 2.5 percent, were equally divided between conventional bonds and Islamic tawarruq.

The Central Bank had resorted to tawarruq — where an asset is brought at a marked-up price, to be paid at a later date, and sold immediately to raise cash — in place of the more traditional Islamic bonds known as Sukuk, because Kuwait is still in the process of completing the legal structure needed to issue sukuks.

In mid-March of this year Kuwait also sold $8 billion of five- and 10-year bonds on the international market, its first such sale in over two decades. Other countries in the Gulf Cooperation Council, including Qatar, Saudi Arabia and Oman, as well as Abu Dhabi, have already sold bonds or taken syndicated loans to finance their budget shortfalls. Though fashionably late in approaching the global debt market, Kuwait’s recent bond issue was well-received by investors. 

According to Reuters, international demand for the bond was strong, attracting $29 billion in bids, despite its pricing coming close to current yields on Abu Dhabi bonds — regarded as the safest in the region. Interest in Kuwait’s bonds were based on the country’s solid investment grade rating and its much better fiscal shape relative to other GCC states, as well as the scarcity of attractive investment quality bonds on international markets.

In total, Kuwait sold $3.5 billion worth of five-year bonds at a rate of just over 2.8 percent (Abu Dhabi's five-year bonds are currently yielding just under 2.6%) and $4.5 billion worth of ten-year bonds at an initial 3.62 percent. In a further indication of the degree of market confidence in Kuwait sovereign position, US and European investors accounted for about 70 percent of the bonds bought. Though it gave no schedule for future issuance, a Kuwait government source said that new bond issues would hinge on the country’s future financing needs and budget deficits.

Answering queries raised at the Kuwait Financial Forum, Minister Al-Saleh revealed that Kuwait’s ’road-map’ aimed at  rectifying imbalances in the economic structure included diversifying economic activities, stabilizing current account, the State budget and shoring up the labor market. He reiterated that the government was determined to press ahead with full-scale economic and financial reforms regardless of the status of oil prices.

The government’s plan aimed at economic sustainability calls for privatization and boosting the private sector, as well as encouraging the growth of the non-oil sector in a bid to wean the economy away from its over-reliance on income from hydrocarbon revenues.

The State is also increasing its financial commitments to investment spending from 3.5 percent of GDP this year to 4 percent next year, said the minister. Urging the banking sector to contribute more to funding development ventures in the country, the minister disclosed that investment spending, including private expenditure in the State development schemes till 2020, amounted to around KD34 billion.

For his part the Chairman of Kuwait Banking Association Majed Issa Al-Ajeel said the forum was held to bring together financial and monetary policy makers with representatives from the banking and financing sectors so as to hold interactive dialogues, reach practical results and promote joint efforts in keeping with current developments on various levels. He added that the timing of the forum was also of special significance given the rapid economic changes taking place in the region following dwindling oil revenues that had impacted government budgets and compelled the issuance of international and domestic debt instruments.

Kuwait’s economy is projected to barely grow in 2017 from the 2.5 percent in 2016 and oil, which accounted for 88.3 percent of the State’s revenues in fiscal year 2016-2017, is expected to hover around $50 per barrel for much of 2017. Given these conditions, the country needs to urgently implement economic reforms, remedy the financial sector, boost private sector, rationalize government expenditure and improve performance, or annual budget deficits and debt issuances could become the norm rather than an exception.

 

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