Kuwait: Higher oil revenues yield record budget surplus
In its latest economic brief on public finance, National Bank of Kuwait (NBK) reports that interim government budget figures released by the Ministry of Finance for the first ten months of fiscal year 2004/05 (FY04/05) reveal an increase in revenues and expenditures of 26% and 13%, respectively. Spending growth was more than three times faster compared with the same period last year. So far, the budget shows a preliminary surplus of KD 2.58 billion after the allocation of 10% of revenues to the Reserve Fund for Future Generations (RFFG).
Oil revenues reached KD 6.64 billion and made up 92% of government revenues. They were up by 31%, supported by an increase in both output and prices of 6% and 29%, respectively. During the first ten months of the fiscal year, Kuwait’s crude production averaged 2.4 million barrels per day (mbd) and the price of Kuwait’s export crude (KEC) averaged $34.1 per barrel. This stands in sharp contrast against the budget’s extra-conservative assumptions of 2.0 mbd and $15, respectively. As a result, actual oil revenues roughly tripled budget projections for the period.
NBK’s economic brief mentions that non-oil revenues stood at KD 586.8 million and came 8% below last year’s level due to significantly lower payments from the United Nations Compensation Commission. Excluding this item, non-oil revenues show a rise of 12%, driven by customs fees (+18%), income tax revenues (+73%), and land sales (+35%), all of which exceeded budget projections for the period.
Service charges, which account for more than half of non-oil revenues, were up a mere 2%, dragged down by a continued drop in revenues from transportation & communication and healthcare. The increase came from housing & public facilities, law enforcement & justice, water & electricity, and fiscal stamp charges.
Actual government spending stood at KD 3.92 billion and covered 72% of the prorated budget, which received additional appropriations of KD 4.9 million for the Amiri grant (totaling KD 195 million) under domestic transfers, and KD 2.4 million in salaries for the Ministry of Public Health. NBK notes that excluding emergency expenditures on security measures during the 2003 war in Iraq, government spending rose by 16% compared with 1.2% last year, while the spending rate was at a higher 73% compared with 70%. The largest contributors to this increase were KD 273.1 million in transfers, including payment of the Amiri grant in January, and KD 148 million in spending on goods and services.
According to NBK, employment-related expenditures made up more than half of total government expenditures, but made no contribution to the growth in the latter. Indeed, employment-related expenditures dropped by 0.6% compared to a small increase last year.
Spending on wages and salaries under chapter 1 rose by 4% compared with flat growth last year to reach KD 1.17 billion, and covered 80% of the prorated budget. The two largest employers, the ministries of Education and Interior, reported the largest absolute increases of 10% and 15%, respectively. A notable 17% increase was also reported by the Ministry of Labor (KD 8.3 million). On the other hand, significant declines were noted in the ministries of Public Health (KD 9.4 million), Communications (KD 8.9 million), Public Works (KD 7.4 million), and Energy – Electricity & Water (KD 7.3 million).
Other employment-related expenditures under chapter 5 were down sharply. Transfers to the PIFSS dropped by 5% to KD 437 million. Wages and salaries at the Ministry of Defense dropped by 9% to KD 436.3 million. Only payments under the National Labor Support Law rose by a notable 20%.
Spending on goods and services increased by a notable 54% to reach KD 421.5 million, though covered only 55% of the prorated budget. NBK’s economic brief mentions that the Ministry of Energy – Electricity & Water, responsible for about two-thirds of spending under this chapter mostly in higher fuel costs, reported a 115% increase from last year.
Spending on projects and maintenance saw healthy growth of 38%, yet covered only 41% of the prorated budget at KD 280.7 million. Growth under this chapter was mostly on electricity and water projects (+63%), followed by public works (+19%). NBK notes that capital expenditures typically undergo substantial upward adjustments in the closing accounts, with the spending rate expected to be at least double the interim figure.
Transfers and miscellaneous expenditures totaled KD 2.04 billion so far in the fiscal year, rising by 9% compared with the previous period. Excluding employment-related components and emergency expenditures during 2003, this chapter shows a remarkable increase of 40% following two consecutive periods of decline, according to NBK.
Transfers made up two-thirds of chapter 5 and rose by 25% following nil growth last year. Apart from payment of the Amiri grant mentioned earlier, transfers to public institutions showed the largest increase of KD 43.7 million (5%), of which KD 14.4 million went to the Public Authority for Agriculture and Fishing, KD 10.5 million to the Public Authority for Applied Education and Learning, and KD 10.3 million to Kuwait University. Transfers abroad also increased by a notable 63% (KD 21.1 million) after falling for two years in a row. Under miscellaneous expenditures, military procurement increased by KD 18.2 million or 12%.