Kuwait government's spending in the first nine months of the fiscal year 2013/14 surged 18 per cent to KD 9.6 billion ($34 billion) driven by current expenditures, said a report.

The public finance figures for the third quarter FY 2013/14 (October to December) reveal a large jump in government spending compared to the second quarter, driven by a rise in current spending, stated the National Bank of Kuwait in its report.

However, expenditure is still not particularly high for this stage of the year and within the overall total, capital spending continues to disappoint. Ultimately, underlying spending growth could end up at around 8-9 per cent this year, but strong oil revenues will ensure another huge budget surplus of more than 20 per cent of GDP.      

Most of this increase came from current spending, which rose 20 per cent y/y and almost doubled from its end of second quarter levels. Although large, the increase in current spending is not especially surprising: due to reporting issues, it can be volatile on a quarter-to-quarter basis.

Moreover, because current spending accounts for around 90 per cent of all spending, its volatility has a large impact on the spending figures overall, said the top Kuwaiti lender.
    
According to NBK, more than half of the increase in current spending came from the large ‘miscellaneous & transfers’ component, which jumped to KD5 billion from KD2.6 billion at end of second quarter. Although details for the entire period are not available, it looks likely that the jump was driven by a rise in transfer payments to the state social security fund, PIFSS.

As an inter-departmental transfer, this proportion of the increase in spending has limited significance for the domestic economy. As such, third quarter’s large rise in spending overstates the stimulus to the economy.

By contrast, NBK said the recorded capital spending remained soft in December. Although it rose by KD0.3 billion to KD0.7 billion in the third quarter from the earlier one, it actually fell 4 per cent y/y.

"Moreover, at below 27 per cent of the full year budget, the rate of capital spending remained subdued for this stage of the year. Ultimately, we expect recent signs of progress on a number of small and large capital projects to filter through to more upbeat official spending data – though perhaps not until next year," said the bank in a statement.

According to NBK, the total government revenues stood at KD24 billion in December, down slightly in year-on-year terms. The fall is largely a result of the softening in oil prices over the past year, which has reduced oil revenues.

This more than offset a notable rise in non-oil revenues, likely generated by payments from the UN Compensation Commission. Despite the y/y drop, overall revenues remain buoyant in historical terms and are already one-third above the government’s budget projection for the year as a whole, said the Kuwaiti lender in its report.

The combination of rising spending and softer oil revenues pushed the 9 month budget surplus down 11 per cent y/y, stated NBK.

"But at KD14.3 billion, the surplus remains extremely large. Moreover, part of the decline is probably due to the expenditure timing issues mentioned above. If so, this effect should even out by the end of the year, possibly through a smaller than usual upward adjustment to spending in the end year accounts."

"Ultimately, we expect a full year budget surplus of around 23 per cent of GDP, only slightly down on the 25 per cent recorded in FY12/13," it added.-TradeArabia News Service