Kuwait hikes public spending (page 1 of 2)

In its latest economic brief on monetary developments, National Bank of Kuwait reports that preliminary government budget figures for the first six months of fiscal year 2002/03 (FY02/03) from the Ministry of Finance show a government surplus of KD 996 million before the allocation for the Reserve Fund for Future Generations (RFFG) and KD 705 million after RFFG.

The result reflects a slight deterioration from a year ago with the surplus 12% below that seen during the first six months of FY01/02. A higher spending level and a slight decrease in revenues led to the decline in the surplus.

Total revenues were 1.2% lower than a year ago and stood at KD 2.90 billion. Oil revenues of KD 2.58 billion grew by a small 0.8% over last year. While the $24.8 average price of oil during the first half of FY02/03 was 6.7% higher than a year ago, Kuwait's production level declined by 7.3% during the same period.

Non-oil revenues fell by 15% to KD 320 million. The decline was largely due to reduced UNCC payments against awarded compensations for losses arising from the Iraqi invasion, which caused miscellaneous revenues to drop by half. Reductions were also seen in some service revenues including healthcare and transportation & communications, which fell by 53% and 12%, respectively.

Other service revenues showed significantly higher income, with water and electricity up 36% and law enforcement and justice revenues up 33%. Overall, however, revenues from services were down by 1%.

One source of increased non-oil revenues was the new national labor support tax being levied on Kuwaiti companies listed on the stock exchange, which helped boost income tax revenues during the period by 62% to KD 16 million. Meanwhile, revenues from customs fees increased by 18%.

Government spending grew by 5.2% during the first half of FY02/03 to KD 1.91 billion, following a far more rapid 16% growth rate a year ago. The increase came primarily in the second quarter (July-September) where spending was 61% higher than the first quarter. Though the first quarter of the fiscal year typically sees lower spending levels, the pick-up in spending during the second quarter was larger than usual.

Wages and salaries and other employment-related spending formed the largest part of the growth in spending, representing an increase of KD 80 million or 84% of the total increase in expenditures. Total employment-related spending grew by 7.2% to reach KD 1.19 billion over six months.

Wages and salaries grew by 5.3% though this was largely due to a substantial increase at the Ministry of Health as a result of depressed outlays during the first half of the previous fiscal year and is not indicative of a trend.

Other employment-related spending saw substantial growth. Transfers to the Public Institute for Social Security (PIFSS) reached KD 288 million, up 16% from a year ago. The rise most likely reflects the amendments to the retirement law that raised the retirement age for Kuwaiti nationals most of whom work in the public sector.

Miscellaneous expenditures at the Ministry of Defense, a large part of which is for the salaries of the armed forces, increased by 1.7% to KD 284 million. Growth was well below more rapid rates in prior years though it was in line with growth in the approved budget for FY02/03.

Other growth in employment-related spending came from increased expenditures due to the national labor support law. This spending, which includes unemployment assistance, and child and social allowances to Kuwaitis employed in the private sector, increased three-fold though it remained a mere 30% of the budget allocation for the period.

Spending on capital projects and maintenance saw rapid growth, increasing by 25% to KD 81 million.