NBK Public Finance Brief
FY09/10 preliminary accounts: Stronger capital spending… Large KD 6.0 bn surplus expected
NBK’s latest Public Finance Brief stated: The 12-month follow up statement for the fiscal year 2009/10 (FY09/10) reveals a preliminary surplus of KD 8.2 billion (bn), compared to the KD 4 bn deficit projected in the budget. We expect the final number to be near KD 6.0 billion when the closing accounts are released very soon. The surplus would be the 11th consecutive surplus for Kuwait.
Total revenues reached KD 17.9 bn, more than double the amount expected, thanks to higher than assumed oil prices. At KD 9.7 billion, preliminary expenditures were 81% of budgeted, versus a historical average of 74%, indicating better reporting and/or faster disbursement by government agencies. Though total reported expenditures were down 35% from a year ago, the drop reflects the absence of an extra-ordinary transfer to the social security fund that amounted to KD 5.5 bn in the previous fiscal year. Excluding this transfer, and all other transfers and spending categories that do not affect domestic demand, such as spending on military hardware and the cost of fuel used in power generation, demand-impacting expenditures saw a significant increase of 18% (y/y). These expenditures, which have more impact on economic growth, represented roughly two thirds of the total. The final accounts are likely to reveal significantly different figures since most categories of expenditure are typically revised higher when the closing figures are released.
The price of Kuwait Export Crude (KEC) averaged USD 68.3 pb during FY2009/10, well ahead of the USD 35 pb number assumed in the budget. As a result, oil revenues came at 243% of the amount budgeted, reaching KD 16.8 bn. Compared to FY2008/09, however, oil revenues were down 15.2% as oil prices and production fell last year. These revenues, which reflect only the value of crude oil produced, represented 94% of total revenues, in line with the previous 5 years.
Non-Oil Revenues – 12 Months of Fiscal Year 2009/10
Reflecting the slump in economic activity last year, non-oil revenues were also down, 14.3% y/y. By the end of 2009 (3QFY2009/10), however, these revenues had been down 26%. The apparent “improvement” in non-oil revenues in the first quarter of 2010 may indicate improving business conditions, especially in the real estate market. For the whole fiscal year, “income tax revenues” (-23%) were hit by lower proceeds from corporate income taxes (-42%). “Property fees” fell 9.3%, reflecting waning real estate activity last year.
In contrast, “Service charges”, more related to consumer activity, ended the fiscal year up 11%. We know the consumer sector held out relatively well throughout the slowdown. The major contributor to the drop in non-oil revenues was “miscellaneous revenues and fees”, down 44%. In fact, excluding those, non-oil revenues would have been flat.
Demand-impacting Expenditures by type, 12 months of FY2009/10
Spending on “development projects, maintenance, and land purchases” was running faster than usual and contributed to the stronger spending picture. Despite being cut 24% in the budget, “Chapter 4” expenditures were actually up 4.7% y/y (KD 989 million). More importantly, they were running at 78% of the amount budgeted compared to their 43% average of the past five years. We expect the closing accounts to show an even higher spending rate as this chapter receives the largest adjustments in relative terms. Capital spending is set to grow further in FY10/11 as the government has budgeted KD 2.1 bn (perhaps more) for this chapter (+66%) and has reiterated its dedication and commitment to development projects and their execution. “Wages and salaries” saw the largest increase in spending this year, up 25% y/y (to KD 2.7 bn).
Capital Expenditures, 12 months of FY2009/10
The NBK report concluded: In conclusion, much higher-than-expected revenues and lower-than-projected expenditures led to a KD 8.2 bn surplus in FY2009/10, before allocations of 10% of revenues to the Reserve Fund for Future Generations (RFFG). However, we reiterate that the official closing numbers for the fiscal year are due soon and are likely to show upward revisions to spending. We could end up with a surplus close to KD 6 bn, or 19% of our estimate of 2009 GDP.
Revenues & Expenditures - 12 Months of Fiscal Year 2009/10