Kuwait runs into resistance on bill to boost borrowing

A draft law allowing Kuwait’s government to tap local and international debt markets is unlikely to be supported by lawmakers unless it makes a convincing case for how any borrowed money will be spent, according to a key member of parliament.

The Finance Ministry is trying to hammer out a compromise with lawmakers to help ease the passage of the highly contentious draft bill, which would allow it to issue debt of as much as KWD20bn ($65bn).

If passed by the house, deadlocked for years over the government’s efforts to borrow, the legislation would help Kuwait reduce the budget deficit and provide a much-needed liquidity boost.

But Safa Al-Hashem, the head of parliament’s finance and economic panel, on Monday questioned if the government has a plan for managing the new public debt or a road map for spending the amount it requested.

Meetings are scheduled for next week to discuss the bill, she said. Should it win committee approval, the legislation would be referred to the house for debate and a vote.

“Don’t talk about requesting urgency in approving the public debt law because you will not find a positive response” from the house, Al-Hashem, the only elected woman in Kuwait’s parliament, said in a statement. “Let me tell you from now that the general tendency is to reject it, because until now, you haven’t been able to convince everybody, including the people.”

Running a deficit that could reach 40 per cent of its economy this year, and unable to borrow due to a showdown between the government and parliament, Kuwait is running out of options.

In the absence of access to debt, the government has been studying various alternatives to add cash to the Treasury, whose liquid assets are almost depleted.

The draft bill allows the sale of 30-year bonds over 10 years from the approval date.

The chamber’s finance panel approved an earlier proposed public debt bill in January 2018, but the law got stuck in parliament, where many legislators claim the government should better manage finances before tapping the market.

The government has said KWD8bn would be used to help plug the current fiscal year’s deficit, under strain from lower oil prices and the impact of the coronavirus.

Kuwait raised $8bn in March 2017 in its first sale of international bonds.

S&P Global Ratings cited “risks stemming from fiscal pressure” when it revised to negative the outlook on Kuwait’s AA- sovereign score last week. It predicts the government’s main source of budget financing, the General Reserve Fund, won’t be enough to cover the fiscal shortfall on its own.

Finance Minister Barak Al-Sheetan said in response to the S&P report that the future outlook “is an automatic result of low liquidity in state reserves,” according to a statement.

“The executive and legislative powers are now working on finding solutions for this challenge and the government is looking forward to the cooperation of” lawmakers, he said.