Liquidity Crisis Drains The Balances Of Government Agencies

The Ministry of Finance figures show a decrease in current government account profits by about 91.5% at the end of fiscal 2020-2021 which is about 306 thousand dinars only, compared to 3.6 million dinars that were achieved in 2019-2020.

This situation is attributed to the decline in current account profits revenues for government agencies to the intensification of withdrawals to finance their various operations and provide the necessary liquidity to spend on the items mentioned in the general budget, at a time when the achieved revenues witnessed a significant decline due to the decline in oil prices and the impact of the repercussions of the Corona pandemic.

The sources indicated that the liquidity crisis prompted some government agencies to take unusual measures after the Ministry of Finance focused exchange operations and directed liquidity to only the necessary items in the budget, especially salaries and subsidies, which necessitated some agencies to increase the frequency of withdrawals from their bank accounts finance their operations.

With oil prices stabilizing at relatively acceptable levels in recent months, above $80 a barrel, sources expected that the bank balances of those parties would rise again in the coming months, so that government account balances would grow again by the end of the current fiscal 2021-2022.

According to figures issued by the Central Bank recently, government agencies’ deposits witnessed an increase of 360 million dinars during the month of August, for the first time since the beginning of this year, after they had witnessed monthly withdrawals since the beginning of the year, either for purposes related to changing the investment strategy of some institutions or because of the need for government institutions to finance some of their projects.

Total deposits in local banks jumped by 492 million dinars to 44.3 billion dinars, with a share of 7.3 billion dinars for government deposits, compared to 35 billion dinars for private sector deposits.

Since the budget of the last fiscal year recorded a historical figure in the deficit, which amounted was about 10.7 billion dinars, government agencies have mobilized under pressure from the Ministry of Finance, and they have begun to take strict measures, both at the level of providing liquidity, or at the level of rationalizing spending on the various items in the budget, including postponing considering requests to increase the capital of any of the parties during the current time.

This is in addition to postponing many payments to contractors, while the exchange operations were limited to salaries and necessary items only.
Liquidity support laws and financial sustainability.

When the crisis worsened fiscal the period of low oil prices prolonged, the government resorted to several solutions during the last period to maintain liquidity levels in the general reserve sufficient to pay the salaries and urgent obligations month by month, whether by exchanging assets between the general reserve and “generations” or by stopping the deduction of a percentage 10% of the oil revenues go to the Futute Generations Fund, but all of these solutions remain temporary and not guaranteed in the event that laws supporting liquidity and transit towards financial sustainability are not passed.

 

SOURCE   :   TIMES KUWAIT

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