Decline in public spending to 9.8 billion instead of 19.4 billion despite surplus
"KFH Research": Kuwait achieved a surplus of KD 14.4 billion in 10 months
Rise in government spending KD 1.5 billion in January with increase in wages and pensions
Revenues Increased KD 24.2 billion in 10 months due to oil prices rise
A report prepared by KFH Research, a research subsidiary of Kuwait Finance House "KFH", indicates that Kuwait's budget for the fiscal year 2011/2012, shows positive signs during the first ten months ended last January, as the surplus rose up to KD 14.4 billion, against a predicted deficit of about KD 6 billion.
The report indicated that Kuwait posted revenues of KD 24.2 billion during the said period on the back of higher oil revenues, while spending still remains less than expected, with total spending in the first ten months of KD 9.8 billion, retreating by more than half of the budget allocation of KD 19.4 billion. The report expected gross domestic product to remain strong in light of the surplus at an annual rate of 5.4% for the current year.
Details are as follows:
Kuwait's monthly budget surplus increased by 61.1% y-o-y to KWD1.2bln in January 2012 (December 2011: KWD1.6bln) from KWD0.8bln in January 2011 which translates to a provisional budget surplus of KWD14.4bln in the first ten months of the fiscal year (FY) 2011-12. This is a positive sign as the Kuwait government during the budget FY2011-12 submission on 31st March 2011, projected a budget deficit of KWD6.0bln for FY2011-12 based on its conservative oil price assumption of USD60.0pb.
Budget Surplus Continues in January 2012
Kuwait's monthly budget revenue increased by 54.8% y-o-y and 2.4% m-o-m to KWD2.8bln in January 2012 (December 2011: KWD2.7bln) from KWD1.8bln in January 2011 on the back of robust oil revenue. This leads to total revenue of KWD24.2bln in the first ten months of the FY2011-12, which exceeds the Kuwait government's revenue target of KWD13.5bln for FY2011-12. Oil revenue, which attributes for more than 90.0% of total government revenue, reached KWD22.8bln in the first ten months (April 2011- January 2012) of FY2011-12.
Kuwait: Monthly Budget Estimate (April 2010 - January 2012)
In terms of spending, for the first ten months of FY2011-12, budget expenditure totalled to KWD9.8bln, which is still far below than the initial budget estimate of KWD19.4bln for FY2011-12. Kuwait regularly projects a higher expenditure based on its prudent underestimation of oil prices but achieves lower expenditure. Nevertheless, total government expenditure rose by 50.1% y-o-y to KWD1.5bln in January 2012 from KWD1.0bln in January 2011 as the Kuwait government increased its social spending through direct transfers and hike in pensions and public sector wages. For instance, in March 2012, the Kuwait government announced a large rise in public sector wages while encouraging reduction on food prices. The official announcement suggested the government workers would receive a 25.0% hike and pensioners would receive 12.5% pension rise.
Fiscal Target Achievable
We believe Kuwait is in a stronger position to attain its fiscal target underpinned by high crude oil prices and increased oil production. Furthermore, the current international oil prices (>USD100pb) are well above the Kuwait's fiscal breakeven average price of USD80.0pb
The International Energy Agency (IEA) projects, global oil consumption to grow by 1.5% y-o-y in 2012 as compared to 1.0% y-o-y in 2011, with all the net growth coming from the transport sector in emerging economies. The passenger vehicle fleet is forecasted to double to almost 1.7 billion in 2035. Alternative technologies, such as hybrid and electric vehicles that use less oil continue to advance. However, it will take a longer time for these alternative technologies to penetrate the current market. In addition, short term pressures on oil markets are easing as Libya is expected to resume supply.
Kuwait's crude oil production remained high at 2.7 million bpd in March 2012 (February 2012: 2.7 million bpd) and expect to bode well throughout 2012 as it begins to produce closer to its estimated capacity of 2.7 million bpd and as new fields come on stream. According to the Organization of the Petroleum Exporting Countries (OPEC), Kuwait's territorial boundaries contained an estimated 101.5 billion barrels of proven oil reserves, roughly 7.0% of the world total. Kuwait exports the fourth largest volume of crude oil among the OPEC countries. State owned Kuwait Gulf Oil Company (KGOC) plans to increase its oil production capacity to 350,000.0 bpd from the Divided Zone with Saudi Arabia by 2015. The Plan is part of the 2030 strategy set by KGOC's parent company, Kuwait Petroleum Corporation (KPC). The company will also produce almost 400.0 million cubic feet a day (cf/d) of non -associated gas by 2020. Kuwait plans to increase its total crude oil production to 4.0 million bpd by 2020.
-Ends-
About KFH Research Limited
KFH Research Limited is an award winning, independent Islamic research entity and is owned by Kuwait Finance House. Its research advisory includes economics, financial and feasibility analysis on new markets and potential investment ventures in various sectors worldwide. Please visit www.kfhresearch.com for more information.
© Press Release 2012
