Spending rises in Kuwait

In its latest economic brief on public finance, National Bank of Kuwait reports on the closing accounts for the government's budget in fiscal year 2001/02 (FY01/02) that show a government surplus of KD 590 million before the allocation for the Reserve Fund for Future Generations (RFFG) and KD 57 million after RFFG.

This result comes slightly better than previous NBK projections, and certainly much better than had been forecast in the government's budget projections which, due to a conservative oil price assumption, expected a substantial government deficit of KD 1.44 billion.

Nonetheless, the surplus was substantially lower than that seen in FY00/01 (annualized) and about half of the figure achieved in FY99/00. This was in part due to an 18% decline in the price of oil which averaged $20.7 during FY01/02 as compared to $25.1 in FY00/01, as well as a 9% reduction in Kuwait's level of crude oil production in accordance with its OPEC quota.

On the other hand, the government's non-oil revenues surged by 39% in FY01/02 to reach KD 812 million. While the bulk of this increase was from UN Compensations Committee (UNCC) payments, excluding them still sees non-oil revenue growth at a substantial 13%.

About half of the increase unrelated to the UNCC payments came from higher service revenues which were up 11% in FY01/02 to KD 329 million, following two years of strong growth (13% and 10%). Some of the rest came from increased revenues from import duties, which were up 10%, while most of the remaining growth was in non-cash revenues.

The strong growth seen in service revenues was driven in part by higher revenues from the health insurance scheme put in place in 2000. Revenues from this program reached KD 34 million in FY01/02 increasing by 42% from the prior year when the program was first introduced.

Another main source of growth were revenues from electricity and water charges which grew by 20% following a year when revenues actually declined by 35%. Other sources of service revenue growth included higher property rental revenues, which increased by 41% adding KD 6 million, and increased income from judicial fees and charges which grew by 38%.

Nearly three-quarters of the increase in non-oil revenues came from UNCC payments paid directly to government ministries and departments for damages incurred as a result of the Iraqi invasion and occupation. Such payments, which appear under miscellaneous revenues, amounted to KD 268 million in FY01/02, or 33% of non-oil revenues.

During FY00/01 total UNCC payments to government ministries and departments totaled KD 77 million. Total compensations received by the government through March 2002 reached KD 345 million, about 12.5% of all UNCC payments made to Kuwait until that date. UNCC payments made to independent government bodies and the oil sector are not included in these figures.

Lower government revenues were not the only reason behind a smaller surplus in FY01/02 as expenditures grew by nearly 12% to KD 4.75 billion. FY01/02 saw as much as KD 496 million in new spending added based on an annualized figure for the nine-month FY00/01, the largest since the immediate post-liberation spending hikes, and more than double the increase seen in the previous fiscal year. In spite of this, spending remained 10% below the budget projection.

Of the increase in spending, KD 233 million, or 47%, was from hikes in housing loan forgiveness (a KD 200 million increase) and increased fuel costs at the Ministry of Electricity and Water (MEW). Neither of these two types of spending entail a cash outflow by the government and thus do not directly reduce resources available to the State. If these are excluded, expenditure growth is a slightly more moderate 6.7%, though still well above the prior year's 2.8%.

Increases in spending included a KD 120 million rise in chapter four spending. While most of this was a KD 83 million increase in land purchases, spending on development projects and maintenance received a long awaited KD 37 million boost. This was the first rise in spending on projects and maintenance in four years.

The downward trend was triggered by a government decision to freeze the approval of new projects to reduce the budget deficit when oil prices plummeted in 1998. Most of the turnaround was at the Ministry of Electricity and Water (MEW) where spending increased by KD 18 million, or 13%. The Ministries of Public Works, Public Health, Interior and Information also saw increases totaling over KD 20 million. Despite growth in this chapter, spending remained 30% below the KD 583 million projected in the official budget.


Growth in wages and salaries slowed slightly from the prior fiscal year though it remained strong at 4.1%. Chapter one spending totaled KD 1.47 billion in FY01/02, increasing by KD 58 million. More than half of this increase was at the Ministries of Interior and Public Health, which continued to witness strong employment trends in tune with the previous year. The Ministries of Education, Communications, and MEW also saw notable growth during the year.

Growth in other employment-related spending not included in chapter 1 on wages and salaries also moderated in FY01/02. Miscellaneous spending (chapter 5) at the Ministry of Defense, a large part of which goes to wages for military personnel, ground to a standstill following 7% growth in the previous year. Transfers to the Public Institute for Social Security (PIFSS) grew by 2.7%, versus 4.5% a year ago.

Meanwhile, new spending resulting from the new National Labor Support Law implemented in 2001 added KD 17 million during FY01/02, and included social and child allowances to Kuwaitis working in the private sector as well as compensation to unemployed Kuwaitis. Employment-related spending grew by 3.8%, compared to 5.7% in FY00/01, and represented over half of total spending.