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Banking

Middle East: Kuwait’s central bank governor resigns

Sheikh Salem Abdulaziz Al Sabah

Sheikh Salem Abdulaziz Al Sabah

Kuwait is perhaps not the first country investors might think of as vulnerable to a sovereign debt crisis. One of the world’s biggest oil producers, its gross external public-sector assets amounted to some 200% of GDP at the end of the last fiscal year, according to Moody’s. Nevertheless, Kuwait’s central bank governor of 25 years standing resigned last month – apparently over government spending. In comments to Kuwait’s state news agency, the former governor, Sheikh Salem Abdulaziz Al Sabah, said: "The challenge of current local economic conditions and forecast growth in public expenditure has reached a point where it would prevent the [Kuwaiti central bank] from carrying out its duties as stated in the bill of its establishment."

As the Arab Spring erupted last year, public spending rose 31%, as money was spent on higher subsidies and public-sector salaries and a $3,580 cash payment to every citizen. According to Reuters, the finance minister reckons public-sector wages now cost 85% of oil revenue.

Investigations

However, some observers wonder if Sheikh Salem’s decision might have been influenced by the victory in parliamentary elections last month of an opposition coalition that campaigned on an anti-corruption ticket. Investigations are expected into allegations that sums were paid to the bank accounts of 15 MPs in return for supporting the government.

Some in Kuwait say the former governor, a member of the ruling family, might have been worried that the central bank’s anti-corruption systems would come under scrutiny.

The political turmoil further delays the Kuwaiti government’s efforts to implement a $104 billion four-year development plan.

Kuwait’s embattled prime minister, another member of the ruling family, resigned in November amid the allegations.

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