Interview: Basel Al Haroon, Governor, Central Bank of Kuwait (CBK)
In what ways do global inflationary pressures affect macroeconomic performance?
BASEL AL HAROON: Local price fluctuations serve as crucial indicators for measuring different elements of economic performance. These include purchasing power and the allocation of resources to consumption, savings and investment. The CBK keeps a close eye on all these economic markers.
The rise in global food prices following the first wave of the Covid-19 pandemic contributed to increased domestic inflationary pressure. It is important to highlight that the Kuwaiti economy is highly dependent on imports to meet its commodity needs. Consequently, annual inflation jumped from 1.9% in July 2020 to 4.7% in April 2022. However, through the implementation of a tighter monetary policy and other instruments by the CBK and other government measures, annual inflation eventually decreased to 3.4% by December 2023.
The CBK is committed to a stable exchange rate policy focused on maintaining the purchasing power of the Kuwaiti dinar and minimising the harmful impact of imported inflation. Inflation rates in Kuwait are intrinsically linked to the structure of its import-dependent economy. This makes the country vulnerable to price changes in international markets and exchange rate fluctuations. While the CBK does not have direct control over these external variables, it does strive to reduce their impact through managed pegged exchange rate systems.
What are the short-term priorities for the CBK, and what regulatory developments can be expected?
AL HAROON: The CBK established a regulatory sandbox framework in 2018 to allow companies and individuals to test innovative financial technology (fintech) products without jeopardising the financial system. Multiple companies have already benefitted from this initiative. Building on this framework, the bank has recently established the Wolooj innovation centre that will be a facility where innovators can develop unique solutions and products in the areas of artificial intelligence, digitalisation, cybersecurity, as well as financial and regulatory technologies.
The CBK is also working to strengthen its rules for electronic payment providers, helping these firms grow both locally and regionally. The bank has proactively pushed for digital transformation across the financial sector. It has urged traditional banks to enhance their digital strategies and digital readiness.
In 2022 the CBK issued guidelines for creating digital banks to support financial stability and innovation. These digital entities can operate under one of three models, and the bank is currently reviewing applications for initial approvals. The CBK is also keen to encourage innovative fintech products and services that support ESG and sustainability by prioritising their testing within the innovation centre.
How can sector stakeholders better integrate ESG principles into their strategies and operations?
AL HAROON: ESG integration in the banking sector is gaining traction in the region, in part due to the recent UN Conference on Climate Change. Research shows that green investment is becoming more profitable, which should motivate banks to focus on ESG principles. Global initiatives are working on a unified ESG reporting system to simplify compliance and reporting.
New Kuwait 2035 aligns with sustainability goals. The stock exchange, Boursa Kuwait, is part of the UN’s Sustainable Stock Exchanges initiative and provides an ESG reporting guide to listed companies.
As the regulator, we have issued guidelines to banks. These cover incorporating ESG factors into governance frameworks, risk management and board policies. Here at the bank we have developed an in-house team focusing on climate change and ESG reporting. We commend the banks that have already enacted ESG initiatives and will continue to report on overall progress.
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