Kuwait hikes public spending

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. Even with this substantial growth, chapter four spending remained well below its budget allocation of KD 335 million for the period. Growth was most rapid at the Ministry of Public Works where spending jumped by 56%.

Meanwhile, spending at the Ministry of Electricity and Water (MEW) increased by 10%. The low ratio of actual to budget expenditures is typical at this point in the fiscal year, as this chapter sees substantial adjustments in the final figures after the close of the fiscal year.

Increased transfers to public institutions gave a strong boost to growth in spending during the first half of FY02/03. Such transfers reached KD 500 million, up 20% from a year ago. This growth was in line with the increase in the budget allocation and went in large part to four institutions, including PIFSS, the Public Authority for Housing Care, the Public Authority for Agriculture and Fishing, and Public Authority for Applied Education and Learning.

Other sources of growth in spending included a 42% increase in spending on goods and services. The increase was almost entirely due to higher spending at MEW, and appears to be largely spending on fuel at the ministry.

This increase does not indicate a trend towards higher fuel costs as the KD 35 million spent during the first half of FY02/03 is well below half of the KD 300 million spent on fuel at MEW during FY01/02 as a whole. Again, major adjustments to actual spending are made by the close of the fiscal year.

Meanwhile, some spending items saw substantial declines. These included housing loan forgiveness on which KD 35 million was spent during the first half compared to KD 89 million a year ago. This is in line with the reduced amount budgeted in FY02/03 following the exceptionally large KD 237 million budgeted in the previous fiscal year.

Another item seeing a substantial decline were foreign transfers which dropped by 41%. About 78% of this decline was due to a reduction in foreign aid which fell by KD 16 million from the same period last year.