Thursday 4 March 2021

Kuwait city. Photo by Shahbaz Hussain Shah/Pexels

Kuwait budget deficit expected to shrink next year

KUWAIT CITY, January 26, 2021

Kuwait’s Ministry of Finance unveiled the draft budget for 2021/2022 with a 13.8% decline
in forecast deficits of KWD12.1 billion ($40 billion) as compared to an expected deficit of
KWD14 billion ($46.2 billion) for the current year 2020/2021. 
The budget assumes no transfers to the Future Generation Fund (FGF) for the current year and for 2021/2022 after the law introduced last year which said there would be no transfers to the FGF in years of deficits, said an update from Kamco Invest. 
Both revenues and expenditures are expected to increase next year with a revenue target of KWD10.9 billion vs expenditure of KWD23 billion.
In terms of revenues, oil would continue to account for the bulk of state revenues next
year. Total oil revenue is expected to reach KWD9.1 billion as compared to KWD5.6 billion estimated for the current fiscal year. The share of oil revenues is expected to increase from 75% in the current fiscal year to 83.5% in 2021/22, it said. 
On the other hand, non-oil revenues are expected to decline by 3.8% next fiscal year to KWD1.8 billion as compared to KWD1.87 billion expected in 2020/21 resulting in a decline in its share from 25% in the current fiscal year to 16.5% in 2021/22.
On the expenditure side, planned spending is expected to increase for the second consecutive year. Total expenses in 2021/22 is expected to reach KWD23 billion led by higher spending in all off the expense components. 
Capital expenditure is expected to see a big boost next year with planned spending of KWD3.5 billion as compared to KWD2.9 billion in 2020/21, a y-o-y increase of 20%. This compares to an increase of 9.6% expected in 2020/21 as compared to final accounts published for the year 2019/20. 
Salaries are also expected to increase next year by 4.2% as compared to an increase of 1% expected in the current fiscal year.
The estimates for 2020/21 clearly shows the impact of Covid-19 on states finances. Total
revenues during 2020/21 is expected to have plunged 56.4% solely led by 63.4% expected
decline in oil revenues, whereas non-oil revenues are expected to increase marginally by
1.3% to KWD1.87 billion from KWD1.85 billion during the last fiscal year. Oil revenues are
expected to come in at KWD5.6 billion vs KWD15.4 billion in 2019/20 mainly due to the decline in oil prices during the year coupled with curbs on production as part of the Opec+ agreement.
Higher oil price to offset lower projected production
The budget for 2021/22 is based on an oil price of $45/b while the budget for the current fiscal year is based on an oil prices of $30/b. Based on the expected revenues and expenditure, the state would require a breakeven oil price of $90/b to balance the budget, according to S&P Global Platts. Kuwait crude grade averaged at $39.5/b during the current fiscal year (Apr-2020 - Jan-2021) so far, significantly above the budget price of crude for the year. As a result, oil revenue for the current year is expected to be higher than the budgeted revenues and deficits are expected to be lower than the $14 billion forecasted in the budget document. 
For 2021/22, Brent crude is expected to average at $54.1/b, according to Bloomberg estimates, that would once again leave significant room for higher actual revenues and lower deficits
in the next fiscal year, said Kamco Invest.
In terms of crude oil production, the 2021/22 budget is based on an oil production of 2.425 mb/d as against current production level of 2.295 mb/d, based on direct communication data in Opec’s monthly oil market report. The current production is in line with the additional Opec+ cuts announced since May-2020 resulting in a spare capacity of 0.81 mb/d. For the 2020/21 budget, oil production is assumed to be at 2.5 mb/d vs. an average production of 2.339 mb/d during the first nine months of fiscal year 2020/21. The lower-than-budgeted oil production is expected to result in a smaller-than-expected oil revenue for the current and the next fiscal years. As a result, this would offset some of the gains expected on account of higher-than-budgeted oil prices, it said. - TradeArabia News Service


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