Kuwait's budget surplus

Provisional figures for the closing accounts of the state budget for the year 2002/03 revealed a surplus of KD1.29bn. The approved budget for 2002/03 had a forecasted deficit of KD1.91bn.

The provisional results show Kuwait having achieved an actual revenue of KD6.2bn, while the budgeted revenue was placed at KD3.5bn, which represents a KD2.7bn or a 76.6% increase.

Like the previous years, the reason behind the budget surplus has been the higher oil prices as well as the under spending of the total allocated expenditure. Oil revenues amounted to KD5.5bn, an increase of 85.2% over the budgeted figure.

Oil revenues also represented 88.4% of the government's total revenue, as compared to 84.8% of the budgeted amount as well as the actual results for fiscal year 2001/02. This reflects the government's increased dependency on oil revenue as its major source of income.

The other revenue receipts also improved by 30.5% to KD720.5mn compared to the budgeted amount of KD552.2mn, but compared to the 2001/02 actual figures, it declined by 11.2% (KD811.6mn). Tax revenues increased by 23.4% as the government collected KD136.5mn in taxes during fiscal year 2002/03 as compared to KD110.6mn in 2001/02.

Tax revenues from all segments increased during the year; tax on net income and profits (KD8.5mn or a 47.5% increase), tax on duties and property (KD2.2mn or a 38.6% increase), entry and registration fees (KD0.5mn or a 45.5% increase) and taxes on international trade and transactions (KD14.8mn or a 17.2% increase).

The segment which reduced total receipts was other revenues achieved by the government which declined to KD211.5 as compared to KD371.4mn in 2001/02, a decline of 43%.

The results also illustrate an under spending of KD500.6mn (9.2%) the total allocated funds of KD5.4bn, which resulted in an actual expenditure of KD4.9bn. This has been a recurring phenomenon in Kuwait's yearly budget allocations.

Actual expenditure did increase though over 2001/02 by 3.8%. Although the budget for 2002/03 had set all the segments to increase, spending on transport & equipment, or capital expenditures, actually declined marginally by 1.7% to total KD23.7mn in 2002/03 as compared to KD24.1mn in 2001/02.

A look at the economic classification of expenditures shows construction spending declining during the period as did land acquisitions. Other expenditures was the main cause behind the increase in total expenditures which increased by 10.7% to KD1,014.2mn in 2002/03 as compared to KD916.2mn in 2001/02. Current expenditure, or government consumption, also increased slightly with the government spending KD28.3mn or nearly 1% more in 2002/03.

With the second quarter of the fiscal year 2003/04 ending on September 30, 2003, it is evident that the state budget will presumably return a surplus again for the fiscal year at hand. The absence of a steady supply of Iraqi oil has helped maintain high oil prices. The budget for the fiscal year 2003/04 is projected to have a shortfall of KD2.3bn.

However, the underlying assumptions used are known to be incredibly conservative, citing a value of US$15/b for Kuwaiti oil and excluding income from overseas investments. Further, we hold the historical belief that the government usually spends 8-10% less than it allocates, an issue that has been debated numerous times in the National Assembly.

Provisional quarterly figures from the CBK show the government to have raked in KD3.09bn in oil revenue for the six month period ending September 30. This represents 104% of the budgeted KD2.97bn oil revenue. This has been achieved on the back of an average of nearly 2.25mn b/d and 2.12mn b/d of oil & gas production for the first and second quarters of the new fiscal year respectively.

Average prices have been well above the budgeted US$15/b as Kuwait export crude is estimated to have averaged US$24.5/b and US$26.7/b for the first two quarters of the fiscal year 2003/04 respectively. With the likely supply constraint in Iraqi output, oil prices are set to remain over well over the budgeted US$15/b.

Assuming the government is able to achieve the other income levels as stated in the budget as well as spend within the boundaries of its allocated amount, another surplus seems inevitable. The projected budget for 2003/04 shows an increase of 5.8% in the non-oil revenues compared to the budget of 2002/03.

The can be attributed principally to five sources, the first of which is the UNCC payments in which the Ministry of Finance has an allotted percentage from companies given compensations. The other sources of increase include income from the Ministry of Finance's fees from legal stamps as well as expected increase in fees and payments on electricity and water.

Adding to these would also be increase in customs payments, in line with the actual results for the previous fiscal year and the increase of the Ministry of Interior's income with the passing of the new traffic law.

A look at the provisional figures from the CBK reveal that Kuwait seems set to also surpass the budgeted other revenue as it has already achieved KD419mn of the budgeted KD584.5mn in the first six months.

Although not a concrete gauge due to adjustments in closing accounts, expenditures for the six month period reached KD1.83bn, only 31.4% of the allocated amount. The budgeted expenditures though point to the governments continued hiring of Kuwaiti nationals as well as sustained transfers & subsidies, despite intentions to channel employment to the private sector as well as plans to reduce subsidies to relieve the government of mounting burdens.

Wages & Salaries remain the second highest burden on the government, second only to transfers & misc. payments. The allocated KD1,649mn for wages & salaries, represents an increase of KD45mn in comparison with the previous years budget. Increases were made to cover salary increases, promotions, social insurance, and allowances in the public sector. It also covers the hiring of new Kuwaiti graduates into public sector positions.

The largest portion of expenditures is taken up by transfers & misc. payments which reached a budgeted amount of KD2,711mn, representing an increase of KD198mn from the previous year. The two ministries which received the greatest increases in transfer payments are the Ministry of Defense and the Ministry of Foreign Affair's public accounts segment.