Economic reforms proving effective - KIA sees 34% growth in 5 years

KUWAIT: Anas Al-Saleh, Deputy Premier and Finance Minister and Mohammad Y Al-Hashel, Governor of the Central Bank of Kuwait speaks during the annual Euromoney conference in Kuwait City. — Photos by Yasser Al-Zayyat

KUWAIT: Kuwait's financial leadership heralded a positive outlook for the country's slow growing economy, pointing to a significant reduction in government spending and growth in assets under management as key achievements. Kuwait shaved off "more than KD 1 billion in government expenditure between 2016 and 2017," said Anas Al-Saleh, Deputy Premier and Finance Minister during the annual Euromoney conference in Kuwait City.

"To reach this result the public financial bodies implemented measures including adjusting cap and growth rate of public spending and treating the waste in this spending, accelerating the process of collecting late state debts, shifting from the annual budget system to the medium-term budget system, limiting the violations of the social allowances, and other measures," he explained.

Income growing, projects on track

Kuwait sets one of the lowest price per barrel break evens in the region. Its 2017/2018 budget includes a $45 per barrel break even for oil revenue. But forecasts expect Kuwait crude to earn an average $52.50, according to Fitch Ratings. This will bolster the emirate's finances and could reduce a projected deficit of KD 7.9 billion (this includes transfers to the Future Generations Fund, part of the country's sovereign wealth fund).

Kuwait Investment Authority (KIA) also grew its assets by more than 34 percent over the last five years, noted the Finance Minister during the Euromoney conference yesterday. According to Al-Saleh the states reserves and assets managed by the KIA are stable. "This is considered the safety vale to our national economy during any crisis and for the future generations, in addition to enhancing state's high creditworthiness," he said.

The minister did not divulge the exact size of KIA's assets under management. The Sovereign Wealth Fund Institute ranks KIA as the world's fourth-biggest sovereign fund, managing $524 billion. Increased government spending on megaprojects under the New Kuwait 2035 reform program is also expected to bolster the local economy. "Two weeks ago an initial public offering (IPO) of the first partnering project was launched, which is the first phase of the North Zour Refinery Project," said Al-Saleh. "We are now preparing the tenders for three other partnering projects including the Kabd station for solid waste, the sewage network project at Um Al-Haiman, and the public schools development project," he noted.

At the same time, reforms of the investment sector are also tracking gains. "The daily average of stock trading value at the Kuwait Boursa hiked by 139 percent during the first eight months of 2017 compared to the same period last year," the Finance Minister noted, adding that the growth indicated increased confidence and trust by local and international investors in Kuwait's economy.

Stable, strong banks

Dr Mohammad Y Al-Hashel, Governor of the Central Bank of Kuwait, noted the soundness of Kuwait's banking sector during the conference, pointing to a slate of reforms intended to protect local banks against global economic uncertainty. "We have enhanced our capital adequacy regime by setting out higher and better quality capital. As highlighted in our flagship Financial Stability Report for 2016, CAR of the banking industry stands at 18.6%, well above the Basel benchmark. We have also put up additional capital requirements, up to 2%, for our systemically important banks," Dr Al-Hashel said.

Kuwaiti banks stand at 10.1%, substantially higher than the 3% global benchmark where the CBK strengthened banks' capacity to withstand liquidity stress and to make their funding structure more stable by implementing Liquidity Coverage Ratio and Net Stable Funding Ratio. He added that the CBK improved, with banks' non-performing loan ratio steadily declining to reach 2.2%, a historic low. Also ensured the justified buildup of sufficient provisions; consequently, coverage ratio has climbed to a record high of 237%.

The Central Bank government also called for further reform: "Progress on many structural fronts is needed; further rationalizing expenditures, increasing non-oil revenues, reforming the labor market, increasing the role of the private sector and in general diversifying the economy are some key areas that would continue to require unremitting attention."

Investment legislation

Kuwait's parliament is likely to approve a law to extend the country's borrowing limits, enabling 30-year debt issues, a senior finance ministry official said on Tuesday. The law would allow Kuwait to increase its debt ceiling to KD 25 billion ($83 billion) from 10 billion currently. It would also allow the Gulf state to issue debt instruments with maturities of up to 30 years, from a current limit of 10 years.

"We're optimistic that the parliament will pass the law as it is, it's a matter of getting it though the process," Abdulaziz Al-Mulla, head of the debt management department at the ministry of finance, said during a Euromoney conference. Kuwait issued a debut $8 billion international bond in March with maturities of five and 10 years. The government decided to extend its borrowing limit to 30 years after noting interest from pension and insurance funds for long-term paper when the bond sale was presented to international investors, said Al-Mulla.

"We believe time is a very important aspect, as we need to finance this fiscal year, from the beginning of April to the end of March 2018, and as we all know there are windows in the market," he added, without specifying when a new bond issue is likely. Kuwait is also working on a law that would allow the sovereign to issue sukuk, said Al-Mulla, adding he did not know when such a law would be in place. The current legal framework does not allow the government to raise financing through Islamic bonds.

By Nawara Fattahova and Faten Omar