Covid-19 Impact and Government measures
The unparalleled and fast-evolving nature of the crisis has made it challenging for us to estimate the overall impact of COVID-19. With major economies on standstill, the outbreak has impacted our lives, economies and societies with growing risks of a global recession.
Estimates indicate that most major economies may lose over 2% of the value of their GDP in 2020. The first quarter of 2020 witnessed one of the worst global equity collapses since the Great Depression, exacerbated by a 60% oil price slump.
Lost revenue, disrupted supply chains as shutdowns and quarantine measures along with restricted movement and business activity are some major issues which are impacting businesses. This high levels of uncertainty and risk have caused major cash flow adjustments and tedious monitoring by management.
The Government has responded with certain measures and announced stimulus packages that are aimed to assist various categories of businesses (individual owners, SMEs and private companies). More details here
Kuwait Banking Association (KBA) announced a moratorium period up to 6 months on bank loans including waiver of interest and charges. The Central Bank of Kuwait announced various monetary adjustments including:
- cut down of the discount rate to a historic low of 1.50%;
- lowering of capital adequacy ratio from 13% to 10.5%;
- lowering of risk weight for SMEs from 75% to 25%; and
- Increasing the limit of financing from 90% to 100%.
Valuation considerations
Most companies/investors looking to value their investments now or later during the year might be in a predicament due to the unprecedented social, economic and business disruption.
For many assets and liabilities, fair values may have changed significantly, reflecting changes in cash flow forecasts, higher uncertainty and elevated risks. Attention must be given to appropriately adjust inputs and assumptions to reflect changes in the underlying business outlook as well as market-driven assumptions. Changes to assumptions should be well documented with sound logical underpinnings.
Businesses should take the following actions:
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