The Kuwaiti government is accelerating the implementation of some economic reforms, in forecast of future downgrades in Kuwait’s sovereign rating, just in case in which is not in able to change the current scenario, especially as regards the provision of stable sources of financing for the budget deficit.
Economic sources say that the government is placing the requirements of international rating agencies that would raise the sovereign rating, in an attempt to move quickly towards their satisfaction, in order to avoid negative repercussions on the state, economic institutions and citizens.
According to the newspaper Al-Qabas, the list of reasons for the downgrade and the requirements for the rating upgrade included about 16 reasons for the downgrade compared to 12 factors that would have pushed towards the upgrade of the rating.
The three rating agencies unanimously agreed on several main factors that prompted them to downgrade their rating, namely the government’s inability to implement financial reforms, the absence of a public debt law and the ongoing confrontation between the government. and the National Assembly.
For its part, the government’s recent plans and visions have focused on adopting radical solutions to tackle the liquidity crisis, passing laws on public debt and limited withdrawals from the generational reserve, taking some measures to reduce trade, increase non-oil revenues, reconsider the tax service and rationalize subsidies.
The sources, while warning of the negative repercussions of the continuous reductions in the sovereign rating on the national economy and on the ratings of local banks, confirmed that the Law on deposit insurance does not negatively or positively affect the country’s sovereign rating, as evidenced by the a fact that was not cited by international rating agencies as one of the reasons for lowering or raising the rating.
He stressed that the Financial Security Act is a psychological stabilizing factor for shareholders and depositors with the state behind the banks, which is an existing obligation, in the presence or absence of the Financial Security Act, a lesson that was established globally after the financial crisis in 2008, and its conclusion is that the banking crisis is not limited to shareholders and depositors, but its impact on the financial system of the state.
The sources added that the United States of America has supported more than half a trillion dollars to cope with the repercussions of the collapse of Lehman Brothers, in order to avoid its intervention to save the bank of about 20 billion dollars.
He noted Kuwait’s successful experience of intervening to save Gulf Bank by owning a stake in the capital in the past allowed her to overcome the crisis, and then come out of the stake with significant gains, as well as preserving the integrity of the country’s financial system.
Sources say the Kuwait Central Bank’s search for alternatives to the Deposit Insurance Act is useful, considering the law is exceptional, and has come in exceptional circumstances, and therefore it is necessary to return to the previous situation before 2008, knowing that the state will not abandon its role in maintaining the integrity of the country’s financial system. ‘cancellation of the financial guarantee has become a deserved necessity and a banking requirement at the same time, to strengthen competition between banks, each according to their size and capacity, and the services it provides to customers, in the interest of depositors and shareholders.
Sources expected that this kind of healthy competitiveness would encourage the merger of small banks to suit the capacities of big banks, while some banks try to make acquisitions to ensure they increase their competitiveness.
The sources indicated that the credit rating of the country has a negative and positive effect on the rating of local banks, regardless of whether or not there is a law for the financial guarantee of deposits, noting that the rating of the banks does not exceed the rating of the state, regardless of the strength and size of the bank.
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