Kuwait's cabinet has approved a bylaw to implement a $5 billion stimulus package to help the state weather a global economic downturn, state news agency Kuna said on Thursday.

The move paves the way for the bill to be implemented once it is published in the official gazette to shore up banks and investment firms hit by a financial crisis.

The bill is meant to enable banks to lend 4 billion dinars ($13.8 billion) within two years, of which the state would guarantee up to 50 percent to encourage lending. The total cost of the package should not exceed 1.5 billion dinars, the central bank has said.

The rescue plan would also guarantee fresh loans given to investment firms which have been struggling to replace debt with banks reluctant to lend.

Kuwait's ruler had cleared a hurdle for the bill when he dissolved parliament and called elections last month. The move enabled the outgoing cabinet to go ahead with urgent bills without approval from parliament.

The next parliament would then be asked to approve the bill after elections expected in May with analysts saying much will now depend how quickly the government will execute it so deputies would find it difficult to block the entire project.

Several deputies have demanded that the rescue package be linked to a bill for indebted citizens, a move opposed by the government which aims to scale back a welfare state seen as an obstacle to expanding the private sector.

The world's seventh-largest oil exporter has been hit by the financial crisis and is its government has had to step in to save Gulf Bank, a major lender.

Under the rescue package, the government can also help banks trying to raise fresh funds by buying any unsubscribed stock in capital increases as it did with Gulf Bank in January. - Reuters