It seems the wheel of government finances is on the move again with two banks, one of them operating in accordance with Islamic law and another traditional, are preparing to grant a government agency a loan of more than 100 million dinars.
A local Arabic daily quoting related sources said the exact date for the completion of the deal is not known, but expected it to be soon, saying the agreement was taking place on some procedural details and explained that preparations for approving this financing had been in progress for a while, and that completing it took a long time and was postponed more than once due to considerations related to the implementation schedule of government projects.
The sources indicated that the loan provided to the government will be directed to meet its target credit needs to establish a commercial housing project in northern Kuwait, explaining that the importance of the target project doubles with the long-term targeted strategy.
The sources did not reveal the credit ratios for each bank, and whether they were, as usual, 60% conventional and 40% Islamic. They pointed out that the method of calculating the financing is different this time, as it does not represent the two sectors, as each time.
A banker is counting on the expected government loan to be a heavy stone in moving the waters of investment spending, which has taken a narrow path from the government since the start of the repercussions of the Corona virus, and before that the growing deficit rates recorded in the general budget, as it reached in the first 11 months of the fiscal year ending at the end of this March to 952.29 million dinars, which constituted 36.3 percent of the total approved in the budget, which amounted to 2.621 billion.
In general, the prospective financing is more important. On the one hand, it is classified as new loans, and is not rescheduled with a defaulting creditor or facing difficulties in repayment. It also represents a difficult credit number that is not repeated much in two years. Moreover, this financing is directed to outside the oil sector, which It is usually a center for major government finances. Finally, this deal fuels optimistic expectations about the possibility of an increase in the pace of major finance in the local market, during the coming period.
It is noteworthy that the last huge financing deal, which is the largest of its kind in Kuwait since the outbreak of the Corona virus pandemic, was in October 2020, when KPC signed with local banks a syndicated loan of one billion dinars, for a period of 15 years.
In this regard, banking officials expect the return of major funds to the private sector and government agencies during the current year, and that growth will be qualitative, albeit at a slower pace than usual before “Corona”, especially amid optimistic expectations of the return of economic activity, the latest of which is from the IMF.
The bankers added that the state of economic growth recovery that Kuwait is expected to witness in the near future will be driven by the reduction in public spending, which was announced in August 2021, and the noticeable rise in the nominal gross domestic product following the rise in oil prices in global markets, and the return of many activities.
The bankers pointed out that the banks will continue their policy towards selective financing targeting major new projects until the end of this year, explaining that this move helps to recover the expected credit growth rate and return it to a healthy rise.
It is noteworthy that the IMF expects Kuwait’s current account surplus to rise to about 16.1 percent as a percentage of GDP, driven by the rise in oil exports.