ALRAQABA . ISSUE 18 51 Al-Shatti: Public Debt is Not Considered a Radical Solution. It is a Temporary Solution to the Budget Deficit Issue The economist and former head of the Kuwait Banks Federation, Mr. Abdul Majeed Al-Shatti, said that there are alternatives available to face the liquidity shortage that differ in their level of impact, cost, andpolitical andpublicacceptance. Among the primary forms of alternatives is taking loans from the global and national markets or Future Generation Fund. Such an alternative is known as public debt. This method is a convenient option in the short term and the fastest in meeting the need for liquidity. It is also the least costly from a financial and economic point of view because interest rates are currently low, and Kuwait›s credit rating is still high. Al-Shatti added that the second alternative is to sell government assets, for example, sovereign investments or public facilities to the private sector or direct sales such as selling land. In addition to increasing non-oil revenues by raising fees, reducing subsidies and allowances, rationalizing employment in the government sector and imposing a tax system. Taxation is considered the weakest option, as it is not collectively and politically accepted. It would not meet our need for liquidity and would take time to be implemented. It also has a negative impact on economic growth as it reduces the purchasing power of the population. He also stressed that the government must introduce an economic reform program, stop wasting government expenditures, and rationalize spending. The government can also start considering the remarks of the supervisory authorities, especially the State Audit Bureau, as an approach to reform, in addition to setting a work program on how to repay the public debt if approved. Abdul Majeed Al-Shatti pointed out that the public debt is not a radical solution. It is a temporary solution to the budget deficit issue. Appropriate solutions include restructuring the Kuwaiti economy, reducing the role of the government, maximizing the role of the private sector, reconsidering government subsidies and employment, and liberating land so that citizens can obtain adequate housing at reasonable prices. Al-Shatti said that the delay in approving the public debt law would further reduce Kuwait›s sovereign rating. Thus, the cost to the government and all institutions that resort to the global market for borrowing will increase. He also mentioned that the impact of the sovereign rating downgrade would be negative due to the increase in the cost of borrowing. The public debt law must be approved, a sound economic reformprogram should be established, the public budget deficit should be addressed, and liquidity should be provided. Regarding the situation of Covid-19, Al-Shatti said: «during the Covid-19 pandemic, the burdens have increased on government expenditures. The pandemic affected the economy in general due to the lockdown. Some activities are still suffering from losses. The deficit in the public budget increased, especially with the drop in oil prices for a long period, which raised the need for liquidity, including the «public debt.» However, due to the absence of a public debt law, the government did not refer to this option despite the low-interest rates which are close to zero.» In conclusion, Al-Shatti said that the solution simply relies on initiating economic reforms, moving away from the costly populist proposals, and adopting the public debt law. Article Feature account deficit. This would assist in leveraging the State’s revenues as well as delaying the liquidity problem for a longer term. By this, the State would be able to earn the rewards of longterm economic reforms. Besides, the impact of this limited withdrawal would only slow down the fund’s growth and would not diminish its assets as claimed.
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