Kuwait's public finances strong

In its latest economic brief on public finance, National Bank of Kuwait reports that preliminary government budget figures for the first nine months of fiscal year 2003/04 (FY03/04) show a surplus of KD 2.01 billion before allocation for the Reserve Fund for Future Generations (RFFG), and KD 1.50 billion after RFFG.

The results for the period from April through December 2003 reflect a sizeable rise in oil revenues. Expenditures growth also accelerated during FY03/04 compared with the first nine months of FY02/03.

Expenditures are likely to see significant upward adjustments after the close of the fiscal year, which is a customary matter. Consequently, the final outcome will be a smaller, yet sizable surplus.

Still, the interim figures contrast sharply with budget projections of a KD 1.74 billion deficit before allocation for RFFG, primarily arising from an extra-conservative assumption on oil prices and oil production levels in addition to steady growth in planned expenditures.

NBK's report states that total revenues rose by 13% from a year ago to reach KD 5.12 billion, double the amount projected for the period. The increase was driven by higher oil revenues, which rose by 12% to stand at KD 4.53 billion by December 2003.

Most of the growth came from increased oil production rather than oil prices, as the $26.4 average price of Kuwait export crude (KEC) during the first nine months of FY03/04 was 6.5% higher than a year ago, while production level increased by a substantial 15%.

Non-oil revenues also rose sharply, far exceeding projections at KD 586 million. While the projected increase was only 6%, the actual increase was 22%.

The main contributors to the increment were KD 30 million in additional miscellaneous revenues, mostly from higher payments by the United Nations Compensation Committee for losses due to the Iraqi invasion, and a KD 42 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 19%. Revenues from law enforcement and justice also increased, yet at a slower rate compared with last year.

Still, a few service charges moved down. Revenues from water and electricity were projected to increase by 7%, but they actually declined by 6%, following a 25% increase last year. This 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 31% of the amount projected in the budget.

According to the NBK brief, corporate income tax revenues increased by 38% despite a projected 9.6% decrease in the budget. They totaled KD 25 million and exceeded the budget by 23%. The increase came entirely from the National Labor Support Tax levied on companies listed on the Kuwait Stock Exchange, as corporate profits more than doubled over the period.

The tax generated KD 12 million for the government, exceeding the budget by about 18%. Meanwhile, revenues from income taxes on foreign companies went down by 3.2%.

Customs fees increased by almost 28% over last year, reaching about KD 94 million. The increase was driven by substantial growth in imports. Transfer of title fees rose by 21%, while visa registration fees decreased by 20%, in line with budget projections.

Total expenditures rose by 5.4%, remaining below the 7% increase projected in the official budget. The increase of KD 159 million, was double that for the previous year. Actual spending stood at 71% of the prorated budget for the period.

Nearly half of the growth was in wages and salaries, though other chapters also saw healthy growth. Excluding spending on military procurement and transfers to public institutions, spending growth was a higher 11%.

Overall, employment-related spending, which tends to cover two-thirds of total expenditures, grew by 3.3% over last year, mostly due to strong growth in wages and salaries, which increased by 7.1%.

Meanwhile, transfers to the Public Institute for Social Security (PIFSS) declined by 5.1%. The latter may not be indicative of a trend, however, as reporting delays are quite common in interim reports.

Strong growth in wages and salaries at ministries and attached bodies came mainly from the Ministries of Education and Public Health, which reported increases of 19% and 15%, respectively. The Ministry of Interior, meanwhile, experienced a drop in spending on wages and salaries, which declined by 7.7% during the period.

The NBK report adds that transfers and miscellaneous expenditures, which constitute over half of total government spending, grew by 1.5%, following a substantial drop the previous year. The increase was driven by the KD 88 million spent on emergency measures related to heightened security during the war in Iraq.

These expenditures received a KD 500 million budget allocation early in 2003 to be spent between FY02/03 and FY03/04.

The rise in miscellaneous expenditures was partly reversed by a KD 40 million drop in military procurement and a KD 26 million decline in transfers to public institutions, primarily to the PIFSS. Transfers abroad were also reduced by 20%. Expenditures related to the National Labor Support Program increased considerably growing by 68% during the first nine months of the fiscal year.

The NBK brief reports that spending on projects and maintenance rose by 21%, accelerating from the previous fiscal year. About 32% of the allocated budget for the period was spent thus far in the fiscal year.

Spending growth was mainly between the Ministry of Electricity and Water and the Ministry of Public Works, with the two ministries receiving increases of KD 10.7 million and KD 18.3 million, respectively. There was also strong growth in development spending at the Ministry of Communication.

Spending on goods and services rose by 15% during the period. Rising fuel costs are likely to explain most of this increase, as the Ministry of Electricity and Water was the largest spender on power generation. Higher oil prices and growing consumption of electricity are primarily behind this growth.