Yesterday, “Sal” talked about how the Amiri grant will lead to inflation. He further pointed out that he personally would’ve preferred to see the money spent on infrastructure projects. Here in Alphadinar we encourage diverse points of view, thus, I will take a supportive view and talk about the benefits of this grant. The political aspect is evident in that the grant came at a time of popular objection to the government. Thus, it has helped loosen the valve on the explosive political scene in Kuwait. People are simply happier!
The economic aspects are where I will try to elaborate more. Although there are inflationary fears, I believe that this grant is the better of two evils when compared with calls for debt forgiveness. We were about to debt forgiveness all over again, however, this grant shut the door on such morally hazardous acts. Other Kuwaitis were wishing for the doubling of salaries. This would have been a terrible drain on a budget that currently devotes more than two-third to the salaries section! In finance, everything is relative. Further, I believe that the relative drawbacks of the amiri grants are much lower than forgiving debt or doubling salaries. People may argue that we should not be discussing any of these alternatives. I tend to agree with that perspective, however, one has to be realistic and acknowledge that Kuwait is a welfare state with a small population and an abundance of oil.
Other benefits will be the stimulative effect on the Kuwaiti economy. Part of a fiscal policy is tax cuts, which lead to an increase in aggregate demand. Well, think about this one-time grant as an injection to an ill-economy. People will spend their money and companies will benefit. On the other hand, they may save it or pay down credit card or bank debt. Such acts will also have a positive impact on banks as they will have more liquidity and will become more willing to lend, thus, stimulating the economy.
What other points do you guys have?
No comments:
Post a Comment