Kuwait: Government may approve public debt law by decree
Drop in oil prices and COVID-19 have had negative effect on economy
Kuwait City: The Kuwaiti government has prioritized passing the public debt law and may possibly do so in an emergency decree if parliament fails to approve the law, Al Rai daily reported.
The government might exercise its executive authority and issue an emergency decree to pass the public debt law. According to Article 71 of the Kuwaiti constitution, the government is able to issue a decree should an urgent matter arise while the National Assembly is in between sessions. The National Assembly is set to conclude by the end of September as elections are due to take place by end of November or early December.
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“The government is forced to pass the public debt law by December, this is what the Finance Minister said, especially since there is no alternative to obtain the necessary liquidity,” a source told Al Rai.
This will not be the first time the government issues a public debt emergency decree, as it has done so in 1987 and in 1998.
Public debt law
Last month, the National Assembly’s finance and economic committee rejected a public draft bill that would allow the government to borrow 20 billion Kuwaiti dinars, locally and internationally, across 30 years.
After the law failed to pass, both the National Assembly finance and economic committee and the government are trying to work on amendments to the law. The committee is suggesting that the amount be decreased from 20 billion Kuwaiti dinars to 10 billion Kuwaiti dinars.
The government and the National Assembly have been at a deadlock for the past couple of years in regards to borrowing money from abroad. This is not the first time the National Assembly turns down a public debt bill, as there has been a couple of attempts in the past.
Lack of Liquidity
Drop in oil prices and the COVID-19 pandemic have both had a negative effect on the Kuwaiti economy, as governmental spending has increased and the state’s revenue has decreased.
During a parliamentary session, Minister of Finance, Barak Al Shitan, said that Kuwait can’t pay salaries beyond October. Al Shitan pointed out that Kuwait has 2 billion Kuwaiti dinars in its Treasury but that is not enough cash to pay state salaries after October.
Currently, the government is withdrawing money from the General Reserve Fund, the government’s main source of budget financing, to obtain liquid cash. According to Al Shitan, if the oil prices keep dropping and Kuwait is unable to borrow money from abroad then liquidity will soon run out.
On August 18, the National Assembly passed a law that would limit the transfer of funds from the General Reserve Fund to the Future Generations Fund. The new law will mean that funds could only be transferred from the General Reserve to the Future Generations contingent on a budget surplus. In the past, 10 per cent would autocratically be transferred each year from the General Reserve to the Future Generation.
In July, the General Reserve Fund lost 1.5 billion Kuwaiti dinars in 38 days. S&P Global Ratings predicts that the General Reserve Fund will be unable to handle the economic downfall alone.