Kuwait underspends budget (page 1 of 2)

In its latest economic brief on public finance, National Bank of Kuwait reports that the preliminary government budget figures released by the Ministry of Finance for the first six months of fiscal year 2003/04 (FY03/04) show a surplus of KD 1.69 billion before allocation for the Reserve Fund for Future Generations (RFFG), and KD 1.34 billion after RFFG.

The result reflects major improvement: A sizeable rise in oil revenues coupled with an unanticipated drop in spending contributed to widening the surplus by 70% compared with the first six months of FY02/03.

The interim figures contrast sharply with budget projections of a KD 1.16 billion deficit, primarily arising from an extra-conservative assumption on oil prices and production levels in addition to steady growth in planned expenditures.

However, the present fiscal year started as war on Iraq was at its climax, causing the suspension of numerous activities including projects and schools, not to mention hiring. In effect, a substantial part of the population traveled abroad to wait on the war. As a result, spending took a nosedive. On the other hand, growth in oil production combined with an increase in oil prices boosted revenues.

According to the NBK report, total revenues rose by roughly 21% from a year ago to reach KD 3.51 billion, double the amount projected for the period. The increase was driven by higher oil revenues, which rose by 20% to stand at KD 3.09 billion by September 2003.

Much of the growth came from increased oil production rather than oil prices, as the $25.6 average price of oil over the first half of FY03/04 was merely 3.2% higher than a year ago, while Kuwait's export crude (KEC) production level increased by 19.4%.

NBK reports that non-oil revenues also rose sharply, far exceeding projections at KD 419 million. While the projected increase was only 6%, the actual increase amounted to 31%. The main contributors to the increment were KD 63 million in additional miscellaneous revenues, mostly from higher payments by the United Nations Compensation Committee, and a KD 22.5 million increase in transportation and communication service charges, which in turn reflect growth in telephone revenues.

Among relatively smaller service revenues, charges for housing and public facilities increased by 20%. Revenues from law enforcement and justice also increased, yet at a slower rate compared with last year.

Still, a few service charges moved backwards, the NBK report states. Revenues from water and electricity were projected to increase by 7%, but they actually declined by 13%, following a 36% increase last year. Such comparison may denote that collections were either exceptional last year or delayed this year.

Revenues from healthcare have also been falling sharply over the past two years, realizing as little as 18% of the amount projected in the budget. Moreover, revenues from educational and cultural services decreased faster than planned, although they had seen a proportionally considerable increase over the same period last year.

Income tax revenues increased by 36% during the first half of FY03/04. They reached almost KD 21.6 million and exceeded the budget by 60%, despite being allocated a 9.6% budget decrease for the period. The increase came from the National Labor Support Tax levied on companies listed in the Kuwait Stock Exchange, as corporate profits more than doubled over the period. The tax generated about KD 10.7 million for the government, exceeding the budget by about 65%.