Kuwait is experiencing an economic downturn, in common with other jurisdictions. In the Kuwaiti energy sector, the Supreme Petroleum Council (SPC) has instructed the Petrochemical Industries Company (PIC) to take steps to withdraw from its proposed joint venture with the Dow Chemical Company. PIC is now facing possible legal action by Dow in connection with PIC’s steps to comply with the instructions of the SPC. Kuwait’s planned US$15 billion fourth refinery project is on hold, and rumours suggest it may be scrapped as the State Audit Bureau of Kuwait begins an investigation into the project’s tendering process. The Kuwait National Assembly has formed a committee to investigate the Dow joint venture, the fourth refinery project, the 25 per cent reduction of the revenues of the Kuwait Oil Company (a government company), and Kuwait’s rights from selling the Arab Oil Company to Iraq during the Iran-Iraq war.

As oil prices plummet, investment has dried up and investment companies in Kuwait struggle, some to maintain a competitive credit rating and others to stave off bankruptcy. In response to these circumstances and in an attempt to offer a lifeline to the financial markets, the Kuwait Cabinet of Ministers has approved a KD 5 billion (approximately US$17 billion) bail-out package to assist investment companies, banks and the local stock market. Before it can be implemented, the draft legislation which constitutes the rescue package must first be passed by the Kuwaiti National Assembly and is currently under review by that body’s Finance and Economic Affairs Committee.

The following is a general description of the draft rescue package and its operation, as set forth in the draft legislation. Under the package, the Central Bank of Kuwait will guarantee 50 per cent of up to an estimated KD 4 billion (approximately US$13.5 million) of new credit facilities to be granted by banks to local companies during the period from 2009 to 2010. This plan is an attempt to encourage local banks to provide new credit to local commercial customers for industrial projects in Kuwait. The new financing may not be used for trading in real estate, securities, or stocks, nor for settling existing indebtedness. In addition, the financing may not be used for other profit-loss sharing activities (mudaraba).  

Investment companies, as they are defined in the rescue package, will receive the following assistance:  

(i) the Kuwait Government will secure 50 per cent of new financing made available by banks to investment companies for settling the investment company’s obligations to local parties as determined on 31 December 2008, other than obligations due local banks;

(ii) shareholders, the Kuwait Investment Authority, and government and quasi-governmental entities will further support investment companies by making loans and support financing available; and  

(iii) investment companies may also issue interest bearing convertible bonds, stock certificates, preferred stock, and/or other Shari’ah-compliant financial instruments.  

In addition, investment companies may apply to the Court of First Instance for restructuring. If granted, all legal proceedings against that company will be suspended, and the Central Bank of Kuwait will then implement and supervise the company’s restructuring plan. Penalties are imposed for false statements and other violations of the restructuring plan and the proposed rescue package.  

Kuwaiti banks registered with the Central Bank of Kuwait may receive guarantees from the Kuwait Government against deficits in required allocations. Decreases in the value of a bank’s real estate and investment portfolios may be guaranteed for up to 15 years. Banks must pay the Kuwait Investment Authority a one per cent commission for the issue of these guarantees. Should a bank’s financial position deteriorate during the term of the rescue package, the Kuwait Investment Authority may purchase convertible bonds or subscribe to preferred shares or other Shari’ah-compliant financial instruments issued by the bank for the purpose of protecting the bank and its owners.  

Members of the Kuwait National Assembly have registered their dissatisfaction with the rescue package. One member has been reported to reject the use of public funds to aid companies that have been involved in speculative deals and mismanagement. Another MP is reported as having said that ‘the government plan includes squandering of public funds by guaranteeing troubled and deteriorating assets’. The Kuwait National Assembly is not expected to consider the rescue package until it returns from committee.  

The rescue package is not the Kuwaiti Government’s first initiative to support the country’s ailing financial sector. On 29 October 2008, the Kuwait National Assembly passed a law to guarantee all forms of deposits held at national conventional and Islamic banks and branches of foreign banks operating in the country.  


Oman projects that real economic growth will slow from an estimated ten per cent (10%) last year to one per cent in 2009. Other analysts estimate a higher growth rate for Oman in 2009 – HSBC forecasts three per cent and Standard Chartered predicts two per cent.  

Currently, Oman is only mildly affected by the apparent financial virus infecting the world’s financial markets. This appears to be partly attributed to the fact that Oman’s banking sector has fared better than most. In addition, Oman is not a member of OPEC and is not subject to its production cuts and set prices. Oman has also diversified its petroleum-based revenue sources by investing heavily in liquefied natural gas production.  

The Oman government has taken some steps to assist the Omani economy and inoculate it further from the global financial contagion. In January, the Omani government pledged to increase its spending by 11 per cent in 2009. The central bank of Oman has cut interest rates and capital reserve requirements, in addition to injecting money into the banking system and raising the permitted loan-to-deposit ratio. The government also plans to implement an OR 150 million (approximately US$390 million) fund to stabilize the local stock market.  

The Kuwait Cabinet of Ministers has approved a KD5 billion (approximately US$17 billion) bail-out package and the Central Bank of Kuwait will guarantee 50 per cent of up to an estimated KD4 billion (approximately US$13.5 million) of new credit facilities.