Kuwait posts largest budget surplus in two decades

As a result of a change in the government's fiscal year, which now ends in March instead of June of each year, fiscal year 2000/2001 was only 9 months long.

Thus, on an annualized basis the surplus becomes the largest realized over the last two decades, and significantly higher than the KD 1.23 billion surplus achieved during the 12-month 1999/2000 fiscal year. After the RFFG allocation, fiscal year 2000/2001 saw a surplus of KD 1.28 billion.

In this report figures for 2000/2001 are annualized to make them comparable to a 12-month period. All changes, both in KD and in percentage terms, are also annualized to facilitate comparison.
Total revenues came in at KD 4.97 billion, a 26% annualized gain over the previous fiscal year. Both oil and non-oil revenues helped push up growth in government revenues.

Oil revenues increased by 26% on the back of some of the highest oil prices in years, with the average price of oil up 9.6% from the previous fiscal year. Higher oil production, which grew by 11.4% due to a hike in OPEC's production ceiling, also helped.

Non-oil revenues collected during 2000/2001 amounted to KD 437 million, representing an annualized growth rate of 31% from the previous year. Much of this increase was driven by strong growth at the ministries of justice, interior, education, and health and the telecommunications department at the ministry of communications. Some of these ministries seemed to be benefiting from increased fees and charges.

This was particularly the case with the ministry of health where revenues were up 116% following 66% growth in the previous year. Moving against the trend was the ministry of electricity and water where revenues fell by 34%. This may be a result of the ministry's efforts in recent years to collect on overdue billing, which raised revenues during the previous two fiscal years.

The higher price of oil and higher government revenues have begun to filter into expenditures which grew by 6% in 2000/2001 and stood at KD 3.19 billion for the 9-month period. Government expenditures declined by an average 0.7% between 1995/1996 and 1999/2000 and fell at the same rate during 1999/2000. Still, the growth rate in 2000/2001 was well below the 11.5% projected in the government's budget, of which only 89% was spent.

More than half of the increase in spending came from goods and services spending at MEW. The NBK report notes that this was almost exclusively from the cost of fuel for power generation, a non-cash expenditure. Spending growth on fuel cost was 84%, following growth of 81% and 33% in 1998/1999 and 1999/2000, respectively.

Wages and salaries were the second main driver of the more rapid growth in government spending. First chapter spending amounted to KD 1.06 billion, representing an increase of 5.6% over the previous year. Primary sources of growth in this chapter were the ministries of education, interior and health, which are also the three largest in wages and salaries spending. For the ministry of education 2000/2001 is the second consecutive year of rapid growth in wages and salaries with 8% growth seen in both years. The other two ministries saw substantial acceleration in first chapter spending growth.

Another source of strong spending growth were general budget transfers to public institutions which increased by 4%, amounting to KD 702 million. The growth was mainly in transfers to the public institution for social security and the public authority for applied education and learning. Growth in transfers to both these institutions tends to be driven by growth in the wage bill where PAAEL is one of the government's main employment centers.

Spending growth in wages and salaries for military personnel may also have contributed to strong expenditure growth as the ministry of defense saw a 7.2% rise in miscellaneous expenditures, a substantial acceleration from previous years.

NBK estimates that total capital spending was down by an annualized 9.2% despite a 35% increase in the official budget. Only 61% of the budget was spent compared to an 85% average over the previous three years. Capital spending was KD 214 million whereas the budget had projected spending of KD 350 million.

This wide discrepancy is due to delays in project implementation. Delays appear to have primarily impacted the ministry of electricity and water which accounted for the bulk of lower spending. Spending on projects at MEW fell by 27%, the third consecutive year of shrinking capital expenditures.