ALRAQABA . ISSUE 18 43 Public Debt Risks to Public Finances The Kuwaiti government is currently encountering risks triggered by the previous borrowings that took place over the past five fiscal years under Law (50/1987) and its amendments. Although such borrowings have been taken in the past, their threats continue to rise and grow further. This is attributed to the contingent financial situations the State had to face due to the COVID-19 pandemic and the precautions taken in response to it, not to mention the COVID-19 recession that affected both the local and global economies. All these factors have pushed the State into a crisis of ongoing deficit in the general budget and a shortage of liquidity in the General Reserve Fund (GRF). The following are the main risks associated with the State’s public debt: - No strategic plans are in place that would help take the necessary corrective actions to ensure that the borrowed funds are channeled towards those areas in need of funding. Instead, the majority of the borrowed funds were used to pay for current expenditures, which are unlikely to generate returns that would cover the cost of borrowing and the repayment of the debt principal. - The government seems to have no clear vision for the repayment of the foreign debt principal– as we have mentioned earlier, despite the fact that the first debt repayment will fall due soon with an amount of $3.5 billion. In addition, the State is struggling with the shortage of liquidity in the GRF and the burden of domestic debts totaling KD 950 million, possibly putting the State at risk of default along with other serious repercussions. - The State is facing credit and reputation risk due to the downgrade of its credit rating by international rating agencies. - Owing to the decline of Kuwait’s credit rating, the State is facing debt renewal risk. In addition to that, it is not possible for the State to obtain new loans on concessional terms as it did with its first debt issuance when Kuwait back then had a high credit rating and therefore managed to obtain loans- more than any other gulf country- at preferential rates of interest. - The government lacks financial, economic, and legislative reforms that are needed to address Article Feature
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