A report said that the situation for states is not the same as the case for individuals or companies. Injury to individuals or companies in the event that they make wrong decisions is limited to the individual or group of shareholders, while the state’s mistake is paid by all people and for many generations to come. Therefore, the prudent decision at the state level remains to hedge against the worst scenario, and there is nothing wrong with hoping for the best, and in a unique country in its position in which the public sector generates 70% of its economy, and employs 83.6% of its national workers, and in which hundreds of thousands are waiting for a job, and in a situation In a country where oil revenues fund 90 percent of its public budget expenditures, the cost of a failure to hedge is unbearable.
First of all, we believe that the Central Bank of Kuwait quickly made a correct announcement about the insignificant impact of the “Silicon Valley Bank” crisis on the Kuwaiti banking sector, and we expect similar quick stances from it according to the developments of the crisis, especially if large banks were affected. At the macroeconomic level, the fiscal year 2023/2024 will begin in less than two weeks with a budget whose expenditure level has increased from the current fiscal year 2022/2023 expenditures by about 11.7%, and its expenditures have reached a record number of 26.3 billion dinars, with the deviation of expenditure allocation due to the predominance of current expenditures. Its percentage is from 87.5% for the current budget to 90.5% for the next budget. Just as a reminder, the upcoming budget expenditures are about 6.5 times the volume of budget expenditures for the fiscal year 1999/2000, and any projection to the future and the lowest rate of growth in the level of expenditures will prove unsustainable, or portend a fire for public finances that is impossible to control, or what all government advisors called Aliens, crashing into a wall.
Whatever the likely scenario, it will affect the demand for oil and pressure its prices and perhaps its production to the lowest, and a barrel of Brent crude in one week between March 9 and 15 this year lost about 9%, and the negative impact on oil prices and production may multiply if the Russian war stops. Ukrainian. Whatever the possible scenario, it will cause a decrease in the prices of financial assets, and until the end of last Wednesday 03/15/2023, the general index of the Kuwait Stock Exchange lost 2.8% and the Dow Jones lost 1.2% within one week, in addition to investment losses in bonds, and the stock exchanges will continue in a state From the sharp fluctuation, and therefore the oil savings will lose part of their value, and the loss may be small and temporary in the event that the first scenario is realized, and it may be painful in the event of a repeat of the 2008 scenario.
And while the variables of the oil market and the variables of the world stock exchanges control the Kuwaiti economy, the public administration in Kuwait has no effect on these variables, and the duty of the public administration in Kuwait is to hedge against a scenario similar to what happened in 2008. And to give an indication of the movement of those variables in that era, the Dow Jones lost About 33.8% of its level in 2008, and Kuwait’s weighted index lost about 43.1% of its level. In the fiscal year 2009/2010, oil revenues lost about 15.9% of their level, and in other events, oil revenues lost about 46.3% of their level in the fiscal year 2015/2016, and in the time of the Corona pandemic, oil revenues lost 42.8% of their level in the fiscal year 2020/2021. . What is happening in Kuwait until this moment is a programmed policy to increase speed and shorten the time of hitting the wall, and perhaps the occurrence of the crisis coincides with a new formation of the government, which restores some awareness of the size of the existing and potential risks, and despite our belief that there is little hope in restoring awareness, but, there is nothing wrong with clinging to hope If only it would start with forming a professional crisis team that follows up on its developments.
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