Kuwait government's spending for the first half of fiscal year 2013/14 hit KD5.1 billion ($18 billion), about KD1.7 billion higher than a year ago, mainly driven by a rise in current expenditures, said a report.

After a weak first quarter – partly related to the delay in approving the budget – reported government spending surged, driven almost entirely by current expenditures rather than investments, stated the National Bank of Kuwait (NBK) in its review.

According to the top Kuwaiti lender, the rise in current expenditures were driven by two main factors.

First, the large ‘miscellaneous & transfers’ segment, which incorporates items such as military salaries and transfers to the social security fund, was up by a huge KD1.1 billion year-on-year. And second, the spending on wages and salaries, which constitute one-quarter of total spending, saw a KD0.8 billion y/y  rise.

In the current expenditures, the spending on ‘goods & services’ declined by KD0.2 billion y/y. The segment’s contribution to current expenditures fell to 14 per cent from 29 per cent in the same period of the previous year.

The drop is likely attributed to a fall in the cost of purchasing fuel from local refineries, in order to supply power and electricity generation stations, stated the report.

Meanwhile, NBK said, the capital spending recovered somewhat in the second quarter after a weak start, rising 9 per cent y/y in the first half of 2013/14 to KD0.4 billion.

The Kuwaiti lender pointed out that the sluggish project implementation had kept the rate of capital spending at 60-70 per cent of the full-year budget over the past two years.

But with investment expenditures budgeted to dip in FY 2013/14, and an expected improvement in project execution, the rate of capital spending could see a marked rise this year, it said.

"We expect to see a pick-up in capital spending in the second half of FY2013/14, although overall government spending growth is likely to be more subdued than last year," stated NBK in its report.

"In total, the level of overall recorded government expenditure reached its highest at this stage of the year in five years. Still, it is worth noting that the rate of spending, at 24 per cent of the full year budget, is more or less in line with its historic average," it added.

According to NBK, the total government revenues fell to KD15.8 billion in the six months to September, slightly down from last year on lower oil prices. Oil revenues reached KD15 billion, with the impact of a three per cent y/y decline in oil prices only slightly offset by a small expansion in production.

While oil prices are likely to remain elevated, an expected cut in production during the second half of the year – in response to weaker global demand and rising oil supplies elsewhere – should keep revenues below last year’s record levels.

Meanwhile, non-oil revenues increased by a strong 34 per cent y/y to KD0.9 billion on higher miscellaneous revenues and fees, likely linked to UN compensation payments, stated the top lender.

The budget surplus reached KD10.7 billion in the first half of FY 2013/14, equivalent to about one-fifth of annual forecast 2013 GDP. Further increases in the surplus this year are likely to more limited, since spending typically surges in the second half of each year due to reporting issues, said the report.

On the 2014 outlook, NBK said Kuwait’s fiscal position was likely to remain strong. "We project a budget surplus for FY2013/14 of around KD11 billion. This is equivalent to some 22 per cent of GDP – slightly below the 25 per cent recorded last year, but still an extremely robust figure," it added.-TradeArabia News Service