The Central Bank of Kuwait (CBK) held a symposium launching the 9th Financial Stability Report for 2020 on Monday at the CBK headquarters as well as through online channels.
The event intended to address the major economic developments at both domestic and international levels, and presented an overview on the financial sector in the State of Kuwait. It hosted prominent economists as panelists and discussants from locally and globally renowned institutions.
Dr. Mohammad Y. Al-Hashel, Governor of the Central Bank of Kuwait, inaugurated the event stating that the Financial Stability Report 2020 gave both a broad and focused examination of financial stability in Kuwait in a year of unprecedented challenges.
The covid-19 pandemic prompted many countries to introduce preventive measures including partial and full lockdowns leading to a halt in economic activity, as constraints materialized on both supply and demand leading to unprecedented impact on both lives and livelihoods.
Dr. Al-Hashel added that given the widespread and accelerated transmission, including multiple waves of the virus and consequent impact on the economy, the economic outlook was clouded to an unprecedented degree, exceeding levels seen during the Global Financial Crisis. This in turn led to frequent revisions of GDP projections by international economic bodies, including the International Monetary Fund. Such uncertainty made it difficult for the fiscal, monetary and economic policymakers to make effective decisions and develop plans to mitigate the crisis-induced repercussions, economic deterioration, and drastic job losses.
The contraction in global GDP was unparalleled in scale and speed, estimated to be around 3.3%, five times worse than during the Global Financial Crisis.
These effects were also reflected through job loss, with the US unemployment rate dramatically surging to 14.7%.
The Governor added that Kuwait faced a dual crisis, where it needed increased medical and strategic spending to mitigate the lockdown implications and support vulnerable sectors of the economy, while simultaneously grappling with an all-time high estimated budget deficit of KD 10.8 billion for 2020/2021, i.e., 29% of GDP, attributable to the plunge in Kuwaiti crude oil prices.
Weakness in oil markets was best demonstrated by WTI future contracts, which fell in April 2020 into negative territory for the first time in history. This highlights Kuwait’s heavy dependence on oil revenues and the deep-rooted financial, economic and structural imbalances that need to be addressed immediately.
The Governor also explained the CBK’s role and proactive measures taken since March 2020 to counter the fallout of the covid-19 pandemic. Such measures included, but were not limited to, cutting the discount rate to a historic low of 1.5% and releasing the capital conservation buffers.
This led to a reduction in financing costs and induced banks to lend more by increasing their maximum lending limits, thus empowering them to continue to fulfill their intermediation role in tighter economic conditions.
The exceptional nature of this crisis emphasized the CBK’s role as the government’s financial advisor, which was showcased when CBK spearheaded efforts in the domestic economic recovery, implementing a slew of relief measures announced under the Council of Ministers Resolution No. 455, forming a Higher Steering Committee for Economic Stimulus chaired by the Governor of the Central Bank of Kuwait.
The mandate of said committee, included, among others, the implementation of stimulus for the local economy in the report produced by the economic team comprising various public and private entities, and was entrusted to provide its insights to address the coronavirus-induced economic and social impacts. The Committee presented proposals and measures, including: “Support of the national workforce in the private sector by doubling the allowance extended to the national labor registered under the Third and Fifth Chapters for six months, i.e. 72,000 employees .
“Drafting a set of labor and rent laws, and supporting and guaranteeing financing to incentivize the banking sector to lend, based on which the Law No. 2 of 2021 on the Rescue of Small and Medium Enterprises (SMEs) Impacted by the Repercussions of Covid-19 Crisis became issued on 18 April 2021.
To this end, and in line with its sense of social responsibility, the CBK in collaboration with a number of banks took several initiatives, chief among them were the following: “Return to work protocols for the banking sector in collaboration with an international consultant to ensure the safety of banks’ customers and staff.
“KD 10 million fund placed at the disposal of the Cabinet.
The Governor mentioned that these measures build on decade-long efforts by the CBK to reinforce both monetary stability and financial stability by adopting prudential policies that enhance the resilience of the Kuwaiti banking system, which allowed it to enter the crisis from a position of strength
Source: Kuwait News Agency