In its monthly assessment of Kuwait’s financial landscape, the National Bank of Kuwait (NBK) said it expected the government’s fiscal year 2015/16 will close with a deficit of KD 3.9 billion or 9.8 percent of GDP. With price of oil falling to a seven-year low, the bank’s monthly report noted that the interim public finance figures for the first eight months of fiscal year 2015/16 (FY15/16) point to a decline in government spending.
In the period to end-August, the government recorded a preliminary deficit of KD1.9 billion before its transfers to the Reserve Fund for Future Generations (RFFG). Government spending of KD6.6 billion fiscal-year-to-date (fytd) as of November was 22 percent lower than during the same period last year. However, at 35 percent of the FY15/16 budget, the spending rate is slightly lower than the five-year November average of 37 percent.
Actual spending was even higher at KD11.2 billion according to new data being published by the Ministry of Finance on actual withdrawals made from the government accounts at the Central Bank of Kuwait.
This accounting difference is related to delays in reporting expenditures by some ministries. Also, the government has payments due of KD1.14 billion to the Ministry of Electricity and Water (MEW) and the Public Institute for Social Security (PIFSS).
Current spending, the bulk of total spending, came in at KD5.8 billion fytd, down 25 percent year-on-year (y/y). The decline in current spending was driven mainly by the ‘miscellaneous expenditures and transfers’ chapter, which includes military salaries and transfers to PIFSS.
Wages and salaries stood at KD2.4 billion fytd, up 9 percent y/y. Miscellaneous expenditures and transfers came in at KD 3.1 billion fytd, down 28 percent y/y, mainly due to a significant drop in support to refined products and LNG. Goods and services stood at KD0.4 billion fytd, down by 72 percent y/y as spending on fuel for electricity and water (MEW) declined by 88 percent y/y.
Capital spending rose by 11 percent y/y to KD 0.8 billion fytd. Capital spending is currently at 34 percent of the full-year budget, compared to the five-year average of 28 percent. This reflects the government's commitment to the strategic projects of the development plan. Spending on projects, maintenance and land purchases reached KD 740 million, up by 8.5 percent y/y.
The Ministry of Electricity and Water (MEW) and Ministry of Public Works recorded the highest ratios of spending to budget, at 41 percent and 48 percent, respectively.
Total government revenues were KD 10.4 billion in the eight months, down 45 percent y/y. Both oil and non-oil revenues witnessed significant declines, recording drops of 46 percent and 32 percent y/y, respectively.
Oil revenues remain low as oil prices fell to a seven-year low and below last year's average. The Kuwait export crude (KEC) price averaged US$50 per barrel during the first eight months of FY15/16 and US$38.2 in November.
With non-oil revenues remaining well below their 5-year average and despite lower oil revenues leading to reduced overall government spending, the NBK report shows that outlays on capital expenditure and on salaries and wages still continued to rise. While the recent accelerated pace of project executions accounted for the rise in capital spending, the higher bill for wages and salaries point to the government’s continued inability to rein-in remunerations for its public sector employees.