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Kuwait cbank says govt needs to boost spending-TV

Imbalances include over-dependence on oil; Lenders still see risk; Central bank in talks with CMA

July 20, 2011 10:16 by



Kuwait needs to increase government spending and support the private sector to overcome imbalances in its economy, its central bank governor said in an interview aired on Tuesday.

The OPEC member’s “one-sided” dependence on oil and the government’s control of all sectors are causing the main imbalances in the economy, Sheikh Salem Abdul-Aziz al-Sabah told CNBC Arabia television.

“There are three structural imbalances in the Kuwaiti economy… (including) the government’s dominance of economic activity… the private sector investor needs to be given a chance and that will reflect positively on the state’s budget,” he said.

Oil revenues in Kuwait, the world’s fourth-largest crude exporter, account for more than 90 percent of state income.

A fall in oil prices is one of the risks facing the country’s economy in 2012, Kuwait’s finance ministry has said in a report on its website (www.mof.gov.kw).

“Without majorly improving the business environment, and urgent and quick capital spending, there will be no growth, and without giving the private sector a chance, the future outlook will be limited,” the central bank governor added.

Last month, the parliament approved a 19.4 billion dinar ($71 billion) state budget for the 2011/12 fiscal year, the biggest since at least 2003.

Sheikh Salem was quoted by state news agency KUNA on Sunday as saying the country’s economy had imbalances which needed to be corrected, but giving no details.

Kuwaiti banks still see lending risks but their growth path is “comfortable” without surprises, Sheikh Salem told the channel.

“Of course their (banks’) situation would have been better if they expanded their credit activity, but they see that there are still risks,” he said.
Private sector credit in Kuwait grew by 2.4 percent year-on-year in June, after edging up 0.7 percent in May, but it is still far below around 10 percent growth seen in 2009.

The governor said the central bank and the Capital Markets Authority (CMA) were in negotiations to reach an agreement on regulating investment firms.

“We are in negotiations with the CMA regarding (our roles), and we hope to reach an agreement to assign roles and responsibilities in order to change our scheme in regulating investment firms,” Sheikh Salem said.

In May, the central bank told investment firms they must have separate licences to operate their lending and investment businesses as it eliminates regulatory overlap with the CMA.

“Most investment companies don’t disclose enough information. Especially the illiquid ones or some of the unlisted investment firms have a lot of issues with the banks,” said Mahdi Mattar, chief economist at CAPM Investment in Dubai.

“Given the lack of transparency, bank lending has not really recovered in Kuwait. On top of that, banks and investors have been waiting for a stimulus package to be implemented for about two years now and nothing has happened,” he said.

The bylaws of the Gulf Arab state’s newly formed CMA came into effect in March and are still not fully implemented. (Reporting by Eman Goma and Martina Fuchs; Editing by Stephen Nisbet)



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