Kuwait’s budget surplus may turn into deficit if oil prices remain weak
The fiscal accounts of the State of Kuwait saw a 1.15 billion Kuwaiti dinar ($3.74 billion) surplus during the first six months of the current fiscal year 2001/2002, compared to a projected deficit in the budget of KD 721 million, according to the latest economic brief published by National Bank of Kuwait (NBK), the Emirate's largest bank.
NBK warned, however, that the surplus is likely to become a deficit by the end of this fiscal year if Kuwaiti crude prices remain at between $15 and $17 a barrel over the next three months. Weaker oil prices and reduced crude oil output have already negatively impacted revenues during the first half of FY01/02.
Nonetheless, the budget surplus reported for the first half FY01/02 is significantly lower than the KD1.93 billion realized over the same period a year ago. This is due to a clear decline in government revenues and an increase in the level of expenditures, the NBK report asserts. Total revenues fell 16 percent to KD2.94 billion, while spending grew by 14 percent to reach KD1.79 billion.
Almost 90 percent of the increase in spending was on transfers or defense/security related.
Higher spending was also accounted for by a rise in housing loan forgiveness, which was up by KD62.5 million. Another KD35.6 million in expenditures was due to servicing the government’s outstanding Government Debt Bonds, used to purchase bad debts from the private sector. Wages and salaries increased by KD21 million or four percent.
The NBK report says oil revenues came to KD2.56 billion for the six-month period, down 22 percent from the same period in the prior fiscal year. A 12.8 percent drop in the price of Kuwaiti crude coupled with a 6.5 percent decline in Kuwait’s oil production was behind this drop. The price of Kuwaiti crude fell to $23.2 per barrel during the first six months of FY01/02, versus $26.6 during the first six months of FY00/01. In the full FY01/02, oil revenues are expected to stand at KD4.65–KD4.71 billion, down by 29–30 percent from FY00/01 on an annualized basis.
Countering this decrease was an increase in the government’s non-oil revenues, which rose by KD163 million to KD376 million ($1.2 billion), a 76 percent increase. Of this increase, KD41 million came from higher service charges, which grew by 32 percent. These were driven mainly by increases in healthcare receipts, which were up KD16 million, and transportation and communications fees—up KD9.5 million. The rest came from customs fees and corporate income tax revenues that saw modest increases.
NBK predicts, however, that no extra-ordinary cuts in spending would be needed to balance the budget. If spending comes in at budget, the government could realize a deficit ranging between KD565-KD620 million. This is still well below the KD1.44 billion deficit projected in the official budget. However, if spending comes in 10 percent below budget as it did last year, this could mean a small deficit of KD38-KD93 million.
Kuwait's 2001-2002 budget projects a deficit of $5.95 billion. Expenditure is forecast at $17.18 billion and revenues at $12.48 billion, with oil income projected at $10.63 billion, or 85 percent of the total. By law, 10 percent of revenues, or $1.25 billion in this case, are deducted for the Kuwait Fund for Future Generations, a $60-billion investment managed by Kuwait Investment Authority. Oil revenues in the budget were calculated on the basis of a conservative price of $15 a barrel and daily production of about two million barrels. The budget for the 2001-2002 fiscal year started on April 1 and ends March 31, 2002. — (menareport.com)
© 2002 Mena Report (www.menareport.com)