Kuwait’s debt law gridlock poses first economic test

Sheikh Nawaf Al-Ahmad Al-Sabah faces an immediate challenge after being sworn in as Kuwait’s new emir. (AFP)
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Updated 01 October 2020

Kuwait’s debt law gridlock poses first economic test

  • Oil exports accounted for 89 percent of revenues for Kuwait last fiscal year

DUBAI: Kuwait’s new Emir Sheikh Nawaf Al-Ahmad Al-Sabah faces the urgent task of overcoming legislative gridlock on debt legislation needed to tackle a liquidity crisis in the country.

Parliament has repeatedly blocked the bill, which would allow Kuwait to tap international debt markets, but the issue has gained urgency as low oil prices and COVID-19 strained state finances and led to the rapid depletion of available cash reserves.

“The country needs to quickly pass a new public debt law to ease liquidity shortages,” said Mohamed Abu Basha, head of macroeconomic analysis at EFG Hermes.

The new ruler, sworn in on Wednesday after the death of his brother Emir Sheikh Sabah Al-Ahmad Al-Sabah, takes the helm with the nearly $140 billion economy facing a yawning deficit of $46 billion this year.

Oil prices at about $40 a barrel are largely below what is needed to balance the OPEC member state’s budget, in which public sector salaries and subsidies accounted for 71 percent of spending for the 2020-2021 fiscal year.

“The deadlock on the funding situation directly threatens the government’s ability to function and pay salaries, which represents a significant escalation in the brinksmanship between the two branches of government,” said Moody’s.

The ratings agency, which downgraded Kuwait last week due to higher liquidity risks and concerns over its institutional strength, said it expected the proposed debt law to be passed by emiri decree between October and December.

Parliamentary elections are due to be held later this year, though authorities have not yet set a date.

Lawmakers opposed to the bill have called for clarity on government plans to reduce reliance on oil exports, which accounted for 89 percent of revenues last fiscal year. Analysts say parliament has hindered efforts to push through sensitive reforms such as introducing value-added tax in a country whose citizens are used to generous state subsidies.

Kuwait could see its economy shrink by 7.8 percent this year, Deutsche Bank has estimated, in what would be one of the worst economic crunches among Gulf oil exporters.

However, Sheikh Nawaf’s succession is not expected to significantly alter Kuwait’s economic outlook, at least in the short term.

“On the economic side, we think it’s more of the same,” said Mohammed Ali Yasin, chief strategy officer at Al Dhabi Capital.

But he added that resolving the debt saga would boost prospects for the country.

Britain, EU tell each other to move on trade

Updated 20 October 2020

Britain, EU tell each other to move on trade

  • Both sides call on each other to protect billions of dollars of trade between the neighbors

BRUSSELS: Britain and the EU said on Monday the door was still open for a deal on their post-Brexit relationship, calling on each other to compromise to find a way to protect billions of dollars of trade between the neighbors.

With just over two months before Britain ends a status quo transition arrangement with the EU, talks on a trade deal are deadlocked, with neither wanting to move first to offer concessions.

A no-deal finale to Britain’s five-year Brexit drama would disrupt the operations of manufacturers, retailers, farmers and nearly every other sector — just as the economic hit from the coronavirus pandemic worsens.

European Commission Vice President Maros Sefcovic repeated on Monday that the EU still wanted a trade deal but not “at any cost” after British Prime Minister Boris Johnson said on Friday there was no point in continuing talks.

“It has to be a fair agreement for both sides — we are not going to sign an agreement at any cost,” Sefcovic told reporters after meeting Michael Gove, Britain’s point man on the existing divorce agreement, in London.

“The EU is ready to work until the last minute for a good agreement for both parties,” Sefcovic said.

Britain, increasingly frustrated by the EU’s refusal to start text-based talks, called on the bloc to make the first move, with its housing minister saying that Brussels only had to make “some relatively small but important changes.”

Housing Secretary Robert Jenrick called on the EU to “go that extra mile, to come closer to us on the points that remain for discussion.”

A spokesman for Johnson again ruled out prolonging any negotiation beyond the end of this year, when the transition period runs out, saying the EU “must be ready to discuss the detailed legal text of a treaty in all areas with a genuine wish to respect UK sovereignty and independence.”

EU chief negotiator Michel Barnier had been due in London for talks with British counterpart David Frost this week. Instead, they will now speak by telephone on Monday to discuss the structure of future talks, Barnier’s spokesman said.

Negotiations broke down on Thursday, when the EU demanded Britain give ground. Issues still to be resolved include fair competition rules, including state aid and fisheries. EU diplomats and officials cast Johnson’s move as a frantic bid to secure concessions before a last-minute deal was done, and European leaders have asked Barnier to continue talks.

British officials have repeatedly said any deal has to honor Britain’s new status as a sovereign country and not try to tie it to EU rules and regulations.

German Chancellor Angela Merkel said compromises on both sides would be needed. French President Emmanuel Macron said Britain needed a deal more than the 27-nation EU.

Britain is launching a campaign this week urging businesses to step up preparations for a no-deal departure. In a statement accompanying the launch, Gove says: “Make no mistake, there are changes coming in just 75 days and time is running out for businesses to act.”

More than 70 British business groups representing over 7 million workers on Sunday urged politicians to get back to the negotiating table next week and strike a deal.