Surplus possible for Kuwait

In its latest economic brief on the government budget in Kuwait, National Bank of Kuwait reviews government finances during the first nine months of the 2001/2002 fiscal year.

Despite growth in government spending and a sharp drop in oil revenues, the government's budget remained in substantial surplus for the first nine months of fiscal year 2001/2002 (FY01/02), i.e. from April through December 2001. Higher non-oil revenues partly countered this trend. The period saw the surplus fall to KD 1.32 billion before the allocation for the Reserve Fund for Future Generations (RFFG) compared to KD 2.47 billion during the same period the prior year.

According to the NBK report, oil revenues fell by 21% on the back of lower crude oil prices to KD 3.59 billion. The price of Kuwait export crude (KEC) averaged $21 per barrel during the nine months, 16% lower than the same period in FY00/01. The average production ceiling as set by OPEC was also lower by more than 7%.

Non-oil revenues were 46% higher reaching KD 605 million. This figure exceeded the amount budgeted for the period by 42%. Much of this increase in revenues came from UN compensation payments. A number of ministries and departments saw exceptionally high revenues no doubt related to payments for damages from the Iraqi invasion.

Payments to the government from the UN Compensations Commission (UNCC) between April and December 2001 were approximately KD 262 million compared to KD 27 million during the prior period. A big part of such payments was reflected in miscellaneous revenues and fees that were up significantly from the prior period by some KD 145 million.

The NBK report reveals that other non-oil sources also contributed to revenue growth. Indeed, income from government services increased by KD 43 million or 22%. The largest increase came from a KD 17 million rise in revenues from healthcare services nearly tripling these revenues from a year ago. Healthcare revenues have risen substantially since a law imposed fees on expatriates for the use of the government's clinics and hospitals in addition to a mandatory health insurance scheme.

Government spending reached KD 2.88 billion during the first nine months of FY01/02, up more than 16% from the previous fiscal year. Growth came mainly from miscellaneous expenditures & transfers and from wages & salaries, together accounting for 96% of the increase.

The NBK report says that higher wages and salaries accounted for nearly a quarter of growth in spending, with another quarter coming from increases in other wage-related items. Total wages and salaries reached KD 928 million, 11% higher than a year ago. The Ministries of Health and Interior saw the bulk of the growth with wages and salaries increasing by KD 47 million and KD 29 million in the two ministries, respectively.

Other wage-related spending increases included a KD 78 million increase at the Ministry of Defense and a KD 28 million increase in transfers to the Public Institution for Social Security (PIFSS). Miscellaneous expenditures at the Ministry of Defense include wages for armed personnel. New items associated with the national labor law, which went into effect in May 2001, also raised spending. Items included KD 29 million for social and child allowances for Kuwaitis working in the private sector and KD 3.3 million in unemployment compensation.

Miscellaneous expenditures and transfers was the fastest growing spending chapter, in large part due to increases in wage-related items. Still, increases in two non-wage related items also contributed to the KD 295 million, or 22%, increase in chapter 5 spending.

These included a KD 136 million increase in loan forgiveness, which rose more than six fold from a year ago, and a KD 60 million increase in expenditures on military hardware.
Meanwhile, goods and services were up by KD 21 million, most of it at the Ministry of Health. Spending on fuel at the Ministry of Elasticity and Water, which had seen substantial growth in prior years, was actually down by KD 5 million during the first nine months of FY01/02. This decline is explained by the decline in petroleum product prices over the previous year.

According to the NBK report, development projects and maintenance was the only chapter to see a drop in spending with a much needed recovery still absent. Spending totaled KD 122 million, 2.8% lower than last year.

A drop was seen at the Ministries of Electricity & Water and Public Works while other areas saw some increases. MEW and MPW typically account for the bulk of capital spending. The continued slump in growth is due in part to delays in the launch of projects at these ministries.

With oil revenues reduced significantly on a lower average price of crude oil, the large surplus seen in the previous fiscal year could disappear. If government spending is on budget by the end of FY01/02 in March, a small surplus of KD 40 million could be seen.

NBK reports that spending could be 8%-10% below budget projections as it has been in the past 5 fiscal years, promising a surplus of KD 464 million. This surplus would be owed in part to higher revenues from non-oil sources. Non-oil revenues could add KD 150 million to previous estimates by the close of FY01/02.