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Parliament approves yet another deficit budget
June 30, 2018, 3:03 pm

Posting annual deficit budgets has gone from being an exception to becoming the norm in Kuwait. Last week, the government won parliament’s approval for its fourth consecutive deficit budget, which revealed a shortfall of KD7.9 billion for the fiscal year 2018/2019 that began on April 1.

Before winding up the second session of its fifteenth legislative term on Wednesday, 27 June, Kuwait’s Parliament held a closed-door session to approve the government’s budget for 2018/2019 and final accounts of 2016/2017. Despite recommendations made by the Budgets Committee to reject the accounts, an apparently discussion-weary parliament that has been in session since October 2017 approved the government’s financial estimations.

Emerging after the budget debate, Minister of Finance Nayef Al-Hajraf said that the actual deficit of KD6.4 billion, which would result from a revenue of KD15.1 billion and expenditure of KD21.5 billion, would rise to KD7.9 billion when the mandatory 10 percent of revenues, amounting to KD1.5 billion, was transferred to the Future Generations Fund.

The 2018-2019 budget shows that oil revenues at KD13.3 billion once again accounted for the lion’s share (88%) of the state’s income, while non-oil revenues remained unchanged at KD1.8 billion (12%). On the expenditure side, the finance minister said that KD3.7 billion (17%) was being allocated for construction projects, KD3.4 billion (16%) for maintaining subsidies; KD2.8 billion (13%) for miscellaneous expenses; and, the remaining KD11.6 billion (54%), was being earmarked for public sector salaries and wages.

In his bid to win parliament approval for the new budget, the finance minister is reported to have said that though the government would curb all wasteful spending it remained committed to spurring economic growth and maintaining the payroll. He pointed out that though the government had trimmed expenses from the estimated KD26.7 billion to KD21.5 billion in the present budget, it had continued financing capital projects.

Notwithstanding the finance minister’s claimed austerity measures, last week’s off-camera budget session witnessed several lawmakers accusing the government of not doing enough to “stop the squandering” of public funds and of failing to implement economic reforms.

Speaking about economic reforms, it is worth noting that the parliament’s cooperation in implementing the much-needed reforms, and its support for measures designed to spur the economy, has been less than helpful. In January of this year, while tabling the budget for the year beginning on 1 April 2018, the finance minister had said the projected budget deficit would be financed by borrowing on local and international debt markets, as well as drawing from the country’s copious reserves.

But plans to borrow from abroad have so far been stymied by the parliament’s failure to approve the government’s request to reform the limitations of the country’s debt instruments. The government’s attempts to raise borrowing limit to KD25 billion from the present KD10 billion and extend the tenure of its debt maturities to 30 years from the current 10 years has faced substantial opposition from parliament.

It is quite obvious that unless the legislative and executive branches in Kuwait get their act together the country is likely to languish in economic doldrums for the immediate future. After posting healthy surpluses for 16 straight years, Kuwait has posted a budget deficit in each of the past three years, in the wake of oil prices sliding since mid-2014.

The government blames the current deficit, estimated at nearly 18 percent of the country’s GDP, on anemic economic growth brought about by lower oil revenues as a result of production cuts mandated by the Organization of Petroleum Exporting Countries (OPEC). The sluggish economic growth is reiterated by earlier World Bank assessments that project Kuwait’s GDP could shrink by 1 percent in 2017 following an increase of 3.6 percent in 2016.

However, the figures tabled by the government in its budgets, and which form the basis for informed discussions and debates on the country’s economy and its growth, needs to be taken with more than a pinch of salt. The government’s budget numbers are calculated on a KD50 per barrel oil price; but oil is currently trading at nearly KD75 per barrel and, so far this year, has averaged over $67 per barrel.

Based on these low oil prices and production level of 2.7 million barrels per day, the budget projects oil revenues to be KD13.3 billion. But, following the decision last week by OPEC and its non-OPEC allies to ease oil-production cuts imposed on member states, Kuwait is expected to increase its daily production to over 2.8 million barrels per day.

This potential increase in volume and the prevailing higher oil prices are expected to effectively erase much of the budget deficits envisioned in the government budget. Then again, tabling annual deficit budgets seems to be the regional trend, so why step out of line.  

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