Kuwait's oil boom continues (page 1 of 2)

In its latest economic brief public finance, National Bank of Kuwait reports that preliminary government budget figures for fiscal year 2002/03 (FY02/03) that closed last March suggest an increase in the budget surplus compared to the previous fiscal year.

In FY01/02, the budget was in surplus by KD 590 million before the allocation of 10% of revenues to the Reserve Fund for Future Generations. NBK expects the budget surplus for FY02/03 to fall between KD 1.3-1.4 billion before RFFG.

The monthly follow-up statement published by Ministry of Finance shows preliminary estimates of revenues and expenditures through end March. Even though these interim reports grossly underestimated expenditure figures that tend to undergo major adjustments in the preparation of the closing accounts, they can still provide good guidance about the actual outcome by comparing them with prior year reports.

A 21.5% increase in oil revenues was primarily behind the increase in the surplus. Government expenditures rose moderately after one time increases in some employment items and in transfers caused spending to surge in the previous fiscal year. On the other hand, capital expenditures continued to gain momentum after the government made that the focus of its economic program.

According to the NBK report, government revenues rose by 16.6% to KD 6.20 billion with oil revenues accounting for 89% of the total. A 24.2% increase in the average price of Kuwait export crude that reached $25.8 per barrel during FY02/03 more than made up for an estimated 2.1% decline in Kuwait's crude oil production.

Revenues exceeded budget projections for the full fiscal year by more than 85% as the latter were based on a price of $15 per barrel.

Non-oil revenues, however, dropped by 8.8% to KD 718 million, though the amount remained comfortably above budget due to KD 204 million in UN Compensations Committee (UNCC) payments to the government for losses due to the Iraqi invasion.

Still, UNCC payments that are reported under miscellaneous revenues were 43% lower than those received in the previous fiscal year. Other revenues as a whole actually increased by a rapid 14.4% albeit at a slower rate than last year.
NBK states that growth in non-oil revenues came primarily from customs duties and fees, land sales and corporate taxes. Taxes levied on foreign companies made their first recovery in several years increasing by 36%.

Revenues from services saw modest growth of 2.4% compared to an increase of 20.7% a year ago. Slower growth was primarily due to a large drop in revenues at the Ministry of Health.

Other service revenues saw healthy growth, including revenues from water and electricity charges, up 13%, and income from law enforcement and legal charges, up 32%. It is worth noting that service revenues are greatly affected by collection of past due fees and irregular reporting by various entities.

Growth in government spending moderated substantially to 2.3% compared to 22% a year ago. This mirrored the smaller increases in budget projections that averaged 3% compared to 10% in FY01/02.

Actual expenditures relative to budget projections were similar to last year at 76%. The spending rate for the full year should be significantly higher once adjustments are made to the closing accounts. For FY01/02 actual expenditures were 90% of the budget, in line with historical patterns.

The NBK report adds that slower growth in wages and salaries and, to a larger extent, cuts in transfers and in spending on goods and services were the main factors behind the reduced growth in expenditures.