Kuwait’s economy hit by global meltdown, falling oil prices

February 3rd, 2009 - 11:21 am ICT by IANS  

Kuwait City, Feb 3 (Xinhua) Kuwait’s economy, particularly the automobile and electronic appliances sectors, have been badly hit by the global financial crisis, entrepreneurs and bankers here said.Ahamed Salikh, a businessman, said there was a 30 percent drop in sales in the automobiles and electronic appliances sectors due to the global meltdown. He said retail businesses were hit by the financial crisis.

Public infrastructure projects such as roads and harbors as well as corporate tenders have shown a significant decline in the last one year, he added.

He noted that the sale of luxury cars costing more than 30,000 Kuwaiti dinars (about $108,000), however, remained unaffected, “as this segment of cars cater to rich individuals whom the slowdown has not really affected yet”.

A gold merchant in the Kuwaiti capital said retail sales in gold have slightly dropped due to the recent hike in gold prices, besides the economic crisis.

Salikh said: “We are looking forward to making the most of the shopping festival in February to recover our losses. Many shops have closed down due to poor business.” Shops are now offering discounts to boost sales.

The global meltdown has deeply affected Kuwait’s banking sector and the equities market. According to a recent report, the stock exchange has shed over 30 percent in the last one year.

The Global Investment House, country’s biggest investment bank, shocked investors by announcing that it has defaulted on most of its $3 billion loan, while another lender Investment Dar said it needed 1 billion Kuwaiti dinars to repay its debts.

Kuwait’s third largest lender the Gulf Bank had to double its capital after losing 137 million Kuwaiti dinars last year in derivatives and other instruments.

Moreover, falling oil prices have been a major concern, since oil is the main source of foreign revenue in the country.

Amir Tameemi, an economist, said the government always plans its budget based on an assumed oil price of $50 a barrel, however, if the price remains below that level for a long time, the country would suffer a deficit. The oil prices have fallen to around $42 after hitting a record high of $147 per barrel last July.

The surpluses from the past earnings cannot sustain the economy for a longtime as they would be liquidated due to the crisis, Tameemi said.

An investment banker requesting anonymity said the country is seeing maximum layoffs in the investment sector. He said 30-45 percent of jobs in the sector were lost due to the financial crisis.

He added that the economic stimulus plan forwarded by the Central Bank of Kuwait (CBK) recently to the cabinet was not very attractive. The plan offers only 25 percent guarantee to investment firms from foreign loans, for which the firms would have to mortgage their assets, he said.

This means the assets of investment firms would be freezed for up to five years or more, while the loans they would get will be hardly enough to repay their debts, the banker said.

The National Bank of Kuwait warned in a recent report that the country’s economic growth would decline by four percent on the back of realty sector and falling crude oil prices.

Kuwait’s Finance Minister Mostafa al-Shamali was however positive. He said the government’s stimulus package would instill confidence in the country’s financial and banking sectors.

The cabinet is expected to approve the plan this week. The package would allow banks to save the troubled companies as well as guarantee bank facilities to various firms.

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