Almost 80 percent of companies in Kuwait have been severely impacted by the plunge in business due to the pandemic, the country’s financial and economic affairs committee said in a report submitted to the National Assembly.
Revenues have dropped by as much as 80 percent on average, the report said, pushing 26 percent of firms to the brink of collapse.
According to the report, the number of customers dropped by 75 percent in May, which hit revenues badly and made as many as 80 percent of companies unable to cover their expenses for six months.
The draft law, which has been under debate for months in the Assembly, allows companies to reduce the salary of their employees by 50 percent provided that the new salary is not below minimum wage.
Kuwait has so far recorded 55,508 cases of coronavirus and a total of 393 deaths, according to the Ministry of Health.
Kuwait’s economy depends on oil exports, has projected a huge budget deficit for the fiscal year (FY) 2020-2021, due to low oil production and prices. Kuwait has projected a shortfall of $25.3 billion for the fiscal year.
Global ratings agency, Fitch expects a general government deficit of 20 percent of GDP at 7.3 billion Kuwaiti dinars ($23.6 billion) for 2020-2021, with the assumption that the oil prices will average $35 per barrel in 2020 and $45 per barrel in 2021.
According to Fitch, the foreign assets of the General Reserve Fund, which holds the accumulated government surpluses after transfers to Reserve Fund for Future Generations (RFFG), will be nearly depleted in FY20/21.
Kuwait’s RFFG accounted for about $489 billion of Kuwait Investment Authority’s (KIA) estimated total assets of $527 billion at the end of March.
“We assume that the government will resume borrowing and open up the RFFG for financing starting FY21/22. Accessing RFFG assets would allow the deficit to be financed at the FY20/21 level for over a decade but will require parliamentary approval and will be politically contentious,” Fitch said in a report in April.
The government’s authorisation to issue debt has expired and it is unable to borrow. However, it is currently making a renewed push on the debt law.
On Sunday, Kuwait’s government submitted a public debt law to parliament that would allow it to borrow 20 billion dinars ($65 billion) over 30 years.
Kuwait is expediting steps to impose quotas on expatriate workers, which will add to the exodus from the country.
Almost 1 million expatriate workers are expected to leave Kuwait by end of this year as economic slowdown due to the coronavirus pandemic forced companies to cut their workforce.
James Swanston, MENA Economist at UK-based Capital Economics, said: “The decline in expat workers will add to the headwinds facing domestic demand. While many of these workers are employed in low-wage jobs and remit a large proportion of their salaries, they are still a key component of demand which will now shrink.”
“Efforts to improve employment prospects of local workers will need to be stepped up. Measures to reduce workers’ reservation wages, improve skills, and entice firms to employ them will be crucial,” he added.