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LARGE SURPLUS EXPECTED

Kuwait 2012-13 budget spending to hit $75bn

Kuwait, November 3, 2012

Kuwait's state budget for the 2012-2013 fiscal year is seen at around KD21.2 billion ($75.2 billion), up 9 per cent compared to last year, mainly driven by current spending, according to a report.

The Amir recently approved by decree the much-delayed budget law for 2012/13, which had been held up by the absence of a sitting parliament. The budget shows a jump in spending, which should in principle be supportive of an economy struggling to gain momentum, said the National Bank of Kuwait in its review.

However, actual spending traditionally undershoots its target and because of this year’s delay, it is subject to even greater uncertainty than usual. Either way, another large budget surplus looks likely, it added.

All of the increase in planned expenditures comes from current spending (including wages, subsidies and transfers, amongst other things), which is budgeted to rise 12 per cent to KD18.6 billion, said the NBK report.

Of this increase, more than half comes from spending on power generation. Traditionally, budget targets in this area reflect the government’s oil price assumption, which dictate the theoretical cost of purchasing fuel, it stated.

This year, however, the increase in the budget oil price from $60 per barrel (pb) to $65 pb seems too small to have generated such a large effect. The bulk of the increase could instead stem from increased power output in light of recent capacity additions, the report added.

The top Kuwaiti lender pointed out that the rest of the increase in current spending comes largely from (civilian) wages and salaries, which are seen rising 16 per cent. Around half of this increase comes from the Ministry of Education, it stated.

The planned increase in total wages and salaries, although significant, is lower than the 24 per cent increase the previous year. Nevertheless, it should still provide support for growth in consumer spending, which has been the backbone of the non-oil economy in recent years, said the Kuwaiti bank in its review.

In total, salaries account for 24 per cent of overall budget spending, up slightly from previous years, it added.

Disappointingly, the NBK said, this year the capital spending is budgeted to decline by 6 per cent to KD 2.6 billion.

"This comes at a time when higher government investment is much needed both to support the economy and to kick-start lackluster infrastructure spending in the government’s development plan, which is now in its third year," the report stated.

A combination of bureaucracy, technical challenges and political constraints has already slowed project execution to a crawl, the bank said in its review.

While a concern, the budget figures on capital spending need not be quite as bad as the headline figures suggest. Firstly, given the budget’s late approval, lower investment spending targets may reflect the limited time remaining this year rather than a lack of ambition.

Secondly, the drop in capital spending stems entirely from a fall in investment in the power sector, which may reflect the end of a recent project cycle; excluding this, capital spending is projected to rise 10 per cent.

Finally, because of an especially weak execution rate last year, actual investment spending could still rise this year, despite the lower budget allocation. Note also that some public capital spending takes place off-budget, the Kuwaiti lender said.

Overall, total spending looks set to provide modest support for the economy for the remainder of this year. Actual spending in FY2011/12 stood at KD17 billion, 88 per cent  of its targeted budgeted level, said the NBK in its report.

A rise in the execution rate to a more historically typical 94 per cent would see total spending rise by 17 per cent y/y. However, the budget’s delayed approval and the absence (so far) of some of the budgetary detail – notably on the large ‘Miscellaneous and transfers’ segment, which includes some important transfer payments – increase the uncertainties surrounding any projections.

Elsewhere, total budget revenues are projected to rise 4 per cent to KD13.9 billion. Oil revenues account for nearly all of this increase. Despite nudging up its oil price assumption, the government’s revenue projection remains extremely conservative and – as in previous years – budget revenues are likely to end up much higher than expected.

Indeed, the price of Kuwait Export Crude has averaged $106 pb in the first 7 months of this fiscal year. Although no official data has yet been published, the NBK estimates that the government may have reached its total year revenue target in September.
 
Non-oil revenues are projected to rise by 2 per cent to KD1.2 billion. However, they account for a very small share of total projected revenues, at 8 per cent, it added.-TradeArabia News Service




Tags: Kuwait | Budget | oil price | Spending | surplus |

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