Caution, out the window: Kuwait eyes $77bn budget spending in 2014-15
Kuwait government's total spending is likely to hit KD21.7 billion ($77 billion) in its draft budget for 2014/ 15, up from KD21 billion in FY13/14, according to a report.
The draft budget for fiscal year 2014/15 (April to March) reveals a modest increase in government spending. Overall expenditures are set to rise by three per cent y/y in budget-on-budget terms, following a budgeted decline of one per cent for the current fiscal year, stated the National Bank of Kuwait (NBK) in its statement.
The small projected rise is a further sign that fiscal policy has entered into a less expansive phase than in the past, partly reflecting sustainability issues. However, because of a likely undershoot this year, actual spending growth in FY14/15 – particularly capex – may still end up stronger than the budget figures suggest.
The projected rise in spending is driven entirely by current expenditures, which are set to increase seven per cent y/y to a record KD19.6 billion.
Within this, the civilian wages and salaries are budgeted to rise 8 per cent, while spending on goods & services (mostly the cost of purchasing fuel from government refineries) is projected to edge up slightly.
But most of the rise in current spending is attributed to the miscellaneous expenditures and transfers segment – which accounts for almost half of total spending.
Within this category, some 40 per cent of the rise is budgeted to come from inter-governmental transfers – mainly related to transfers to the social security fund – and subsidies for fuel products and LNG. These types of outlays have limited significance for the domestic economy, stated the NBK in its report.
Once they are excluded, growth in the ‘demand-impacting’ portion of the budget is 2 per cent y/y, close to the overall figure, it added.
According to NBK, the capital expenditures are budgeted to drop by a large 20 per cent y/y to KD2 billion – the largest cut on record. This is also the lowest budgeted level in the past 5 years.
The fall is driven by a decline in capex by the Ministry of Public Works and the Ministry of Electricity and Water, by 44 per cent and 19 per cent respectively. Although the precise reason is unclear, it could be partly related to the completion of a round of infrastructure projects, the Kuwaiti lender stated.
"In any case, we think the outlook for growth in capex is better than these draft figures imply – not least because a number of delayed government projects are finally showing signs of getting off the ground," it added.
On the income side of the budget, NBK said the total government revenues were projected to increase by 11 per cent to a record KD20.1 billion. Oil revenues too are expected to rise at a similar pace to KD18.8 billion.
Oil prices are assumed to average $75 per barrel, up from the $70 assumed for FY13/14, while assumptions for oil output are unchanged at an average of 2.7 million barrels per day, said the report.
Meanwhile, non-oil revenues are projected to rise at steady 4 per cent to KD1.3 billion. All of these assumptions are conservative. In our view, a total revenue figure of KD30 billion is more likely, it added.
NBK said under the government’s projections, the budget records a deficit of KD1.6 billion in FY14/15 before transfers to the Reserve Fund for Future Generations.
"Based upon our more upbeat forecasts for revenues, however, the fiscal position looks much more solid. We project the budget to record another hefty surplus of around KD9 billion or 20 per cent of GDP in FY2014/15 – slightly below the expected surplus for this fiscal year, it added.
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