The effects of the global financial crisis hit many parts of the region hard. This was mainly due to a collapse in regional property prices and equity values.

Dubai has been the most high-profile casualty of this and has been forced to restructure billions of dollars worth of debt and take bailouts from Abu Dhabi to avoid a default. Dubai now seems to be making a recovery as it goes back to the core sectors that the emirate was built on.

For Kuwait, the situation is very different. Several investment firms have defaulted on their debts and unlike in Dubai, progress towards a debt restructuring has been disappointing. Bankers in Kuwait say that a further 10-12 investment firms are in negotiations with their banks about restructuring their debts. If they manage to agree a way forward without the need to involve the courts, as Global Investment House did with its $1.7bn of debts, then things should proceed smoothly.

If they have to involve the courts, chances are things will go a lot slower. Bankers are now worried that the courts may be unwilling to rule in favour of the liquidation of Kuwaiti firms, partly because of reputational damage that may result. It is also because it is unclear what would happen after a company is declared bankrupt.

But with so many firms in financial difficulties, Kuwait needs to find a way of dealing with them, especially if it wants to continue to attract foreign investors. Already, bankers are saying the uncertainty about these debt problems may weigh on investors’ minds.

Kuwait plans to attract $32bn from the private sector for the development of 28 new projects and ensuring banks are confident about being able to get their money back is essential. Dubai succeeded in restoring confidence by the state taking a leading role in ensuring a deal got done quickly.

Although the firms in debt negotiations are not state-owned, Kuwait needs to take a leading role in ensuring amicable restructuring deals are reached. If it does not, then banks may.