Loan write-offs — a dream that returns once again to the spotlight with political enthusiasm, targeting the emotions of a citizen overwhelmed by debt as though it were a distant salvation capable of changing his fate. It appears adorned with a deceptive grandeur, intended to mobilize popular voices, chants, and applause of the kind we have grown accustomed to hearing until we have grown weary of it. This heated enthusiasm has arrived with a new pretext this time: a proposal claiming that this demand “does not cost the state anything.” The phrase is repeated as a slogan by everyone who stands to benefit from the realization of this dream, alongside a troubling failure to understand it properly.

The proposal is a draft law providing for “the write-off of consumer and personal loans owed by citizens without costing public funds a single dinar, whereby the state deposits the value of the loans as a deposit with the banks, each according to the value of the loans purchased from it, while the banks recover their loans and interest from the returns on those deposits and return them after full repayment to the bank.” It further calls for assigning the Central Bank to manage the process.

According to statistics from the Ministry of Finance and the Central Bank, the value of consumer loans reached nearly one billion dinars, while the number of borrowers is estimated at 541,000. Among them, 4,768 had legal action taken against them due to payment default — equivalent to 0.88% of total borrowers, or less than 1%.

Although a law of this kind would serve nearly 40% of all citizens, driven by a humanitarian justification arising from only 0.35% of that same total, this alone is a decisive indication of its failure to uphold the values of justice and equality among citizens. It thereby creates a serious question regarding its constitutionality. Yet even this is not the fundamental dilemma. The deeper problem lies in whether local banks are capable of generating total returns equal to one billion dinars within a short period of time — ten years, for example. This would require depositing 3.3 billion dinars, excluding cumulative considerations not worth detailing here, under the assumption that the rate of return on deposits equals 3% annually.

The profitability of the banking system is built on loan interest. To generate the returns on the government deposit intended to finance loan write-offs, banks would have to lend the market the value of that deposit for ten years. The local market is not capable of absorbing such a money supply, for economic reasons we need not expand upon here. This would force local banks to lend abroad. The question that must therefore be considered is: “To what extent are banks prepared to assume the risk of external lending on such a scale?” Surely, this question does not await an answer.

Here arises the alternative of depositing this amount with larger foreign banks in order to achieve the law’s objective. And this, precisely, is what the Kuwait Investment Authority already does in managing sovereign fund capital and generating returns. Therefore, if this is the logic, let the Authority simply transfer those profits directly to write off the loans. If we find ourselves cheering for such a pitiful proposal, then how badly our efforts have failed.

Regardless of whether the deposit is held locally or abroad, the cost of such a law lies in forgoing the profits of a multibillion-dinar deposit, or the profits of investment opportunities that may generate returns exceeding the total value of the loans, or developmental returns that create employment opportunities and contribute sustainably to increasing gross domestic product. The cost also lies in freezing 3.3 billion Kuwaiti dinars for ten years, while its value bears the cumulative effects of the annual interest rate determined by the Central Bank. There is no doubt that such a measure constitutes a clear waste of public funds and benefits one segment of society at the expense of another.

And since the issue is economic in its foundation — deeper than such simple solutions can ever address — one must keep in mind that if loans are written off today, and those who benefit do benefit, the beneficiary will inevitably knock once again on the doors of financing institutions when a new morning arrives, asking them for another loan. “As though, Abu Zayd, you never went to battle.”