A Delicate Balancing Act Dr. Mohammad Y. Al-Hashel Chairman of the - - PowerPoint PPT Presentation
A Delicate Balancing Act Dr. Mohammad Y. Al-Hashel Chairman of the Higher Steering Committee for Economic Stimulus 4 June 2020 N.B.: This English translation is prepared by the Central Bank of Kuwait for information purposes only. In case of
4 June 2020
Chairman of the Higher Steering Committee for Economic Stimulus
N.B.: This English translation is prepared by the Central Bank of Kuwait for information purposes
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Table of contents
Current situation
Overview of economic stimulus package
Financing support and guarantee program
Concluding thoughts and aspirations
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Current situation
Overview of economic stimulus package
Financing support and guarantee program
Concluding thoughts and aspirations
Table of contents
4
The world is facing a sudden, unprecedented, generation-defining and unique crisis Worst recession since the Great Depression Unprecedented velocity and intensity
Dual crisis for Kuwait
Uncertainty around crisis – both lockdown and recovery timelines – significant social and economic impact, and virus resurgence
1.6 Bn workers impacted globally 305 Mn job losses
expected in Q2 2020
20+ year-low
3-5% GDP decline
expected globally
8-12% GDP decline
expected in Europe
Significant uncertainty affecting consumer & business confidence
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We have been fighting this battle on two fronts - lives and livelihoods, with a need to continue balancing between both
Health capabilities and capacities Protect lives Protect livelihoods
Build testing and treatment capabilities for the virus Find treatment: medicines and vaccines Suppress virus spread as soon as possible Have the willingness to expand recovery to avert the expected economic shock Support individuals and businesses impacted by the lockdown Prepare to resume work safely when virus spread decreases
Lockdown measures were imposed to suppress virus spread and manage the capacity
New imperative is re-opening the economy and adapting to operate alongside the virus under necessary health protocols and civic responsibility until a breakthrough in vaccines, a cure or herd immunity is reached Extended periods of lockdowns will suffocate livelihoods – difference in re-opening approaches could cost global economy trillions
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lockdown helped mitigate exponential case count growth
3 months
drop in visitors to grocery, retail and recreation
and 26% witnessed a revenue drop of >80%
reduce rental payments for tenants to be able to pay them
uncertain about the post-crisis economic conditions
On the lives front: health and government authorities took measures to slow the spread of the virus and save lives, which in turn impacted the economy
staged re-opening plan with necessary protocols being developed to minimize virus resurgence
3 months
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Lower levels of spending and investment Non-oil GDP contraction Indirect economic and knock-
30-42% average revenue drop expected for impacted Corporates and SMEs 8-10x increase in default rates Businesses will face a liquidity shortfall of up to KD 3 Bn Job loss in the private sector Increased risk of essential goods and services shortages
On the livelihoods front: failure to intervene quickly and effectively would result in bankruptcies leading to adverse economic and social effects
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4،5 3،5 4،0 5،0 3،0 0،5 1،0 1،5 2،5 2،0 4-10 May 1% 5% 8% 12% 19% 20% 32% 18-24 May 20-26 April 27 April - 3 May 0،5 13-19 April 30 March - 5 April 10،6 23-29 March 16-22 March 9-15 March 14 February - 8 March 6-12 April 11،1 10،7 10،7 10،7 11،1 8،9 8،5 5،2 2،1 10،4
Cumulative number of COVID-19 cases reported in the countries under study3 (million)
Globally, governments’ responses to the COVID-19 crisis have exceeded USD 11 trillion (15% of global GDP)1
Cumulative size of stimulus packages
2 10 12 7 1 5 4 3 6 8 11 9 11-17 May
Liquidity injection from the Central bank Direct financial support Guarantees Postponements of dues Concessionary loans Not determined2 COVID-19 cases3 Regulatory changes Equity investments
USD trillion
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Higher Steering Committee for Economic Stimulus mandate and framework in response to the
crisis
Economic stabilization and recovery preparation Economic reform and re- imagination
A national project owned by all institutions and parties in Kuwait The Higher Steering Committee for Economic Stimulus proactively focused on stabilization and preparing the economy for recovery to enable future reform
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To fulfil its mandate, the Higher Steering Committee for Economic Stimulus adopted a set of guiding principles
Introduce immediate remedies and urgent practical solutions 1 Practice burden-sharing with all stakeholders 2 Withhold compensation for missed profit opportunities and losses 3 Support competent businesses to get through this phase 4 Enable businesses to restore activity once normality is restored 5 Protect all economic sectors to prevent cross-sectoral damage in light of sector interdependence 6 Incentive packages based on current data and conditions 7 Design and propose effective programs that can be implemented by stakeholders 8
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Table of contents
Current situation
Overview of economic stimulus package
Financing support and guarantee program
Concluding thoughts and aspirations
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Clear objectives were defined across all segments of the economy and measures tailored accordingly
4 key segments 22 measures taken to stimulate the economy
Additional measures (A1 – A11)
Measures included in the Council of Ministers Resolution No. (455) (M1 – M11)
Government Households Businesses Banking sector
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M Council of Ministers
measures
A
Additional measures Protect nationals working in impacted sectors from the repercussions of the crisis Maintain the availability and price stability
Ensure minimum income to cover the cost
Support the salaries of workers registered under Chapter 5 of the PIFSS Disburse the retirement pension in select cases for a period of 6 months Double the support provided to workers registered under Chapter 3 of PIFSS Implement a moratorium on personal loans Waive fees on POS, ATMs, and online channels for 3 months
M1 M2 M3 M4 M9 A1 A2 A3
Households – key objectives and measures taken Households
Secure basic needs Provide financial support Preserve job security
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M4 A1
Doubling national labor support Support 6 months Duration ~15k Kuwaitis under Chapter 5 Beneficiaries ~57k Kuwaitis under Chapter 3
The Economic Committee introduced additional measures to support households and employees
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Postpone loan payments due to the National Fund and the Industrial Bank Provide concessionary loans to SMEs Provide concessionary loans to impacted Corporates and individuals Postpone monthly contributions to PIFSS for 6 months Provide government fee waivers to impacted institutions Expedite payments due from government agencies to the private sector Implement a moratorium on loans for impacted companies Amend some labor law articles Propose postponement of eviction of commercial tenants Government financing support and guarantee scheme Propose establishment of specialized courts for economic, financial and commercial cases
M5 M6 M7 M8 M10 M11 A4 A5 A6 A7 A8
Business sector – key objectives and measures
M
Council of Ministers measures
A
Additional measures
Businesses
Promote flexibility Alleviate financial burdens Support cashflow and liquidity positions
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Banking sector – key objectives and measures Banking sector
Activate macroprudential tools to expand banks' lending capacity Provide attractive rates to borrowers and lenders through monetary policy measures Prohibit the liquidation of collateral posted by bank customers
A9 A10 A11
Boost banks’ willingness to lend Build lending capacity Reinforce sector flexibility
A
Additional measures
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CBK has proactively introduced swift and firm macro-prudential and monetary measures
2 April 2020
lending capacity made available to banks through reducing liquidity requirements
2 April 2020
additional regulatory capital released to banks by relaxing capital buffers
2 April 2020
lower capital requirements for SME loans
16 March 2020
CBK Discount Rate at historic low
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Government
Minimize costs Maximize support impact
Government – key objectives
Maximize support impact Minimize costs
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M1 M2 M3 M4 M9 A1 A2 M5 M6 M7 M8 M10 M11 A4 A5 A6 A7 A8 A3 A9 A10 Protect nationals working in impacted sectors from the repercussions of the crisis Maintain the availability and price stability of food and medical supplies Ensure minimum income to cover the cost of living for impacted workers Support the salaries of workers registered under Chapter 5 of PIFSS Disburse the retirement pension in select cases for 6 months Double the support provided to workers registered under Chapter 3 of PIFSS Implement a moratorium on personal loans Postpone loan payments to the National Fund and the Industrial Bank Provide concessionary loans to SMEs Provide concessionary loans to corporates and impacted individuals Postpone monthly contributions to PIFSS for 6 months Provide government fee waivers to impacted economic institutions Expedite payments due from government agencies to the private sector Implement a moratorium on loans for impacted companies Amend some labor law articles Propose postponement of eviction of commercial tenants Establish a government financing support and guarantee scheme Propose establishment of specialized courts for economic, financial and commercial cases Waive fees on POS, ATMs, and online channels for 3 months Activate macroprudential tools Activate monetary policy tools Prohibit the liquidation of collateral posted by bank customers A11
Government Banking sector
Secure basic needs Provide financial support Preserve job security Promote flexibility Alleviate financial burdens Support cashflow and liquidity positions Build lending capacity Boost banks’ willingness to lend Reinforce sector flexibility Maximize support impact Minimize costs
Households Businesses
22 measures were defined across all segments of the economy
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March April May June § Maintain the availability and price stability of food and medical supplies 11 March
M2
§ Waive fees on POS, ATMs, and online channels § Implement a moratorium on personal loans § Implement a moratorium on loans for impacted companies 12 March
A3 A2 A4
§ Postpone monthly contributions to PIFSS for a period of 6 months § Disburse the retirement pension in select cases for a period of 6 months 18 April
M8 M9
§ Activate macro- prudential tools 2 April
A9
§ Provide concessionary loans to SMEs § Provide concessionary loans to corporates and impacted individuals 20 April
M6 M7
§ Establish a government financing support and guarantee scheme 4 June
A7
Proposed establishment of specialized court for economic, financial and commercial cases § Amend some labor law articles § Double the support provided to workers registered under Chapter 3 § Protect nationals working in impacted sectors from the repercussions of the crisis § Support the salaries of workers registered under Chapter 5 of PIFSS 19 May
A5 A1 M1 M4
A8 § Prohibit the liquidation of collateral posted by bank customers 15 March
A11
§ Activate monetary policy tools 16 March
A10
§ Ensure minimum income to cover the cost of living for impacted workers 28 March
M3
§ Instruct government agencies to expedite due payments to the private sector 5 April
M11
These measures have been deployed in a timely fashion given the urgency of the situation
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Table of contents
Current situation
Overview of economic stimulus package
Financing support and guarantee program
Concluding thoughts and aspirations
22
Concessionary loans Direct support Liquidity support from central banks Other measures Guarantees Postponements of dues
Guarantees and concessionary loans constitute 40% of stimulus measures % of stimulus package components globally 5 20 19 8 32 17
USD 11 Tn
Stimulus packages to tackle the crisis were reviewed for
Concessionary finance and loan guarantees are widely used globally
1
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A 3-fold recipe is required to ensure timely and efficient financial support for businesses Ensuring banks have sufficient liquidity to lend Providing attractive rates to borrowers and lenders through monetary policy measures and subsidizing financing cost Credit risk sharing to motivate banks to extend lending
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Subsidized concessionary financing will be provided to SMEs for up to 4 years
Example: cost for financing KD 100k1
KD 245
(0.25% of total)
Cost on SME
100%
Bank financing
Up to 250,000 KD per eligible SME Periodic contractual expenditures (e.g., payroll, rentals, etc.) Payment term: up to 4 years including a grace period of 1 year Interest: CBK DR + 1% (currently 2.5% per annum) SMEs negatively impacted by COVID-19 Excludes SMEs with non-performing loans Excludes SMEs whose parent companies have access to alternative financing sources Corporates retaining national workforce level and achieving ratio by end of 2021 100% (year 1 & 2), 90% (year 3), 80% (year 4) Eligibility Financing amount
KD
Usage Conditions Financing cost subsidized by government
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Beneficiaries Companies that don’t fall under the definition of SMEs Usage Periodic contractual expenditures (e.g., payroll, rentals, etc.) Conditions Payment term: up to 3 years including a grace period of 1 year Interest: CBK DR + 1% (currently 2.5% per annum) Eligibility Corporates negatively impacted by COVID-19 Excludes corporates with non-performing loans Corporates retaining national workforce level and achieving ratio by end of 2021 Financing cost subsidized by government 100% (year 1), 50% (year 2), 0% (year 3)
Subsidized concessionary financing will be provided to Corporates for up to 3 years
Example: cost for financing KD 100k1
KD 1,813
(1.18% of total)
Cost on Corporates
100%
Bank financing
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Guaranteed component
Principal only
Guarantee structure
80% guaranteed by the government
Fees
0.25% of total guaranteed outstanding balance is charged to banks annually and provided to the State
Eligibility
All companies – SMEs and Corporates – negatively impacted by COVID-19 and were operating effectively pre- crisis
Leveraging global benchmarks, Kuwait’s loan guarantee scheme was designed to align with the needs of the Kuwaiti national economy
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The loan guarantee scheme offers several benefits to the economy, banks and impacted borrowers
Cost not exceeding one tenth of the available financing amount A time-bound scheme with a clearly defined deadline Reduced inflationary pressures that may arise from direct liquidity injections Responsibility and risk sharing by banks and the government, enabling each of them to focus on their primary role, and reducing moral hazards Financing without a direct impact on
upon actual payment default - freeing up capital and enabling its investment
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Next steps
Submission to the esteemed National Assembly to review and enact the required legislation
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Table of contents
Current situation
Overview of economic stimulus package
Financing support and guarantee program
Concluding thoughts and aspirations
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Concluding thoughts and aspirations Winning the battle of lives & livelihoods will require a delicate balance
Unity is essential to overcome this challenge
A unique crisis… a unique opportunity
Historically, crises have served as a catalyst for change and development Succeeding on the two fronts requires a collective commitment to health protocols in order to save lives and keep our economy running Kuwait is at a juncture and has a unique
resilient economy
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Sources
§ International Labor Organization (ILO) § International Monetary Fund (IMF) § Google COVID-19 Community Mobility Report, n = 1072, May 25, 2020 § COVID-19 Kuwait Business Impact Survey, n = 498, 13 May 2020, Bensirri Public Relations § McKinsey Kuwait Business and Employee sentiment survey, n=176, 24-26 April 2020 § Ajar Boosting rent collection in the Coronavirus crisis report § WHO database § Official press releases § Official press releases § Press coverage of official press releases
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N.B.: This English translation is prepared by the Central Bank of Kuwait for information purposes