Deficit of 3 financial years seen at KD 18-20 bn
Call to focus on causes and locations of traffic accidents
Public Finance Deficit and General Reserves Withdrawals
Every now and then, financial and economic issues are brought, and we share an opinion about them as much knowledge we have about which might not be enough, and even if it was enough, we might mistake the diligence. That is fine because our purpose has always been to encourage interaction, promote transparency, intensify public debate on such issues, and then try to steer debate towards top priorities instead of addressing some details that are not equally important to those. One of those hot issues at present is declared withdrawals from the general reserve estimated at KD 28.575 billion as raised by some deputies at the “National Assembly”, “Al-Qabas” newspaper and the “Kuwaiti Economic Society,” and many others, which is a worthy effort that deserves appreciation. On our opinion - conscientiousness we believe that it is more important to contain this if it was presented precisely by the authorized bodies and its future projections remain the most important, more than just the figure and its interpretation which is consistent with laws and governing accounting rules of the Kuwaiti public finance, albeit weak. says AlShall Economic Report prepared by Al-Shall Consulting Co headed by Jassem Al-Saadoun.
According to the Ministry of Finance spokesman, and the Ministry’s response is a commendable development, the amount is not entirely to pay the budget deficit because such deficit was only for two fiscal years 2015/2016 and 2016/2017 out of the three years. It was covered by withdrawing KD 10.808 billion in two installments from the general reserve. The amount is equivalent to 38% only of the above amount. If we consider the actuary deficit in the Social Security Institution as financial deficit, an additional amount of KD 1.413 billion shall be added to the said deficit transferred from the general reserve to cover it, making withdrawals to cover the financial and actuary deficits about KD 12.221 billion, or about 43% of said withdrawals from the general reserve. Most of the remainder, about KD 15.548 billion, was, according to the Ministry’s statement, an accounting entry imposed by law to transfer the general revenues surplus to future generations reserve, which is just transfer of funds from one fund to another and has nothing to do with the deficit.
The Ministry spokesman’s figures are inaccurate such that if we add all figures mentioned in the statement, the total number will be KD 27.769 billion, which is less by about KD 0.806 billion than the controversial issue of KD 28.575 billion. This matter needs clarification or/and detail.
Last Thursday, “AlQabas Newspaper” has published three complementary numbers, the first is an adjustment adding KD 195 million to the transferred reserve future generations reserve to be KD 15.743 billion instead of KD 15.548 billion as reported by the official Ministry spokesman’s statement. Second number is KD 253 million as repayment of “Kuwait Airways” losses. And the third is KD 358 million transferred to the Ministry of Defense and should have been already mentioned within the statement.
The second observation is that the total transferred amount to the future generations reserve for the three fiscal years 2014/2015, 2015/2016 and 2016/2017, was KD 15.548 billion according to the Ministry of Finance statement, and became now KD 15.743 billion. But the figure is much higher than what is required by law which provides for transferring 25% of total public revenue to the future generations reserve in the fiscal year 2014/2015, or about KD 6.2 billion, according to total revenues in the final account. The percentage was adjusted to be 10%, KD 1.4 billion, in the subsequent two fiscal years for the fiscal year 2015/2016, and about KD 1.4 billion also for the fiscal year 2016/2017. This means that the transferred amount to the future generations reserve for the three fiscal years is supposed to be about KD 9 billion while the transferred amount according to the Assistant Undersecretary of Finance is KD 15.743 billion. A positive difference of about KD 6.743 billion and the transferred was extra, which is a good thing, but it needs explanation because it is not consistent with the provision of the law and its source is unknown unless it includes the investment income which is not usually transferred to the general reserve. The third observation is that withdrawals from the general reserve in each fiscal year differ substantially in their values between the contents of the two Ministry of Finance officials: the early statement of the Minister and what came later by the Assistant Undersecretary, the Ministry Spokesman. Which of the two is the correct one, the former or the subsequent one? We are inclined more to the latest statement.
On the other hand, what remains more important than all the foregoing is that the public deficit has become increasingly real. It scored KD 5.071 billion in the financial year 2015/2016 and became KD 5.737 billion in the fiscal year 2016/2017 (KD 5.9 billion from the final account); it will range between KD 6-8 billion in the FY 2017/2018. If we add the actuary deficit, especially after the tampering with the social security system by populist decrees and resolutions. That means that the deficit of only three financial years will be around KD 18-20 billion, and will increase over time. The debate and controversy should focus on the need to adopt preventive policies to avoid an incoming and devastating fire to public finance. If that happens, then any financial and economic reforms would be in vain and social and political stability would not be achieved.
Traffic Accidents – Street War
Whenever a human’s safety, education, health, work and services are the ultimate goal in any country, the more advanced and stable that country is. There is no successful development if the human is neither its purpose nor its means. We criticize Kuwait’s development experience because it lagged in development project measurement indexes, such as corruption, transparency and competitiveness, education, health services and infrastructure indexes. The Ministry of Interior adds another index for backwardness, namely, excessive waste of human souls.
The Ministry of Interior published traffic accidents statistics -street war- in the last five years 2012-2016, estimated. They contain appreciated detail with a formidable fatalities number in proportion to the number of the population, perhaps the highest in the world. Number of accidents deaths for the years 2012-2016 scored between 424 deaths as the lowest and 461 deaths as the highest. This gives an annual average of 443 deaths, i.e. an average of 1.2 death cases every day, or 6 death cases every 5 days. 2016 statistics show that 83% of death cases belong to the younger group of 11-50 years old, 47.4% of the total are for youths between 2140 years, the beginning activity and forming a family age. These losses are too costly to be compensated, neither in its human part nor in the economic. Statistics do not indicate any effort to reduce it substantially though there was some reduction in the level of accidents in 2016 but with increase by 11% in the number of human injuries vis-a-vis 2015.
2016 statistics show that per capita deaths are 4.1 per 100 injuries. This means the number of injuries is about 25 times of deaths, noting that some of those injuries are like living-dead, i.e. total or serious disability. In other words, there were 10,219 human injuries in 2016. The Traffic Department announces regrettably its inability to provide details of the level of injury because the Ministry of Heath Medical Ambulance Department does not provide details. In addition, the waste is also significant in both public and private material losses of those accidents, the extent of waste for health services and so is the resulting traffic congestion.
The situation being as such, it is required to give top priority to preserve the lives and health of people and dealing with those statistics not as an end in itself, despite its importance, but to employ it in the public policy to reduce the cost of street war. Originally, these statistics should be used to diagnose this pathological phenomenon and then to build a set of goals of fixing a time to reduce them to the minimum by focusing on the causes and locations of the accidents, such as the age, sex, and nationalities of doers as well as places and timings of their intense occurrence. Eventually, the human being is the most important value.
Energy Consumption
Despite the sharp disagreement on which comes first, the economic growth or the preservation of the environment, which the focal concern of the “G-20” last meeting after the withdrawal of the United States from Paris Agreement, announcement kept coming on the gradual shift from using fossil fuel led by oil to clean oil. Britain and France were the last announcers about preventing manufacturing gasoline vehicles by the year 2040. Other companies like “Volvo” and “Tesla” and countries like Norway announced advanced and early steps on the same path. It is well known that transportation sector is the most oil-consuming sector. Energy Information Administration in the United States, the largest energy consumer, monitors changes in energy components there. It mentioned in a report issued on July 3, 2017 that the percentage of fossil fuel in energy components scored 81% of the total in 2016, the lowest in a century. In contrast, the contribution of clean energy sources formed about 10.5% of total energy consumption in 2016, the highest contribution since 1930 .
Change in consuming energy components in the United States reduced fossil fuel consumption, the lowest among advanced countries, and it was uneven. While coal bore almost all reduction, natural gas increased its share of consumption steadily in 9 out of the last 10 years since 2006. While coal and gas contribution in energy components was equal in 2006, clean gas contribution has become twice the contribution of coal in 2016. Oil consumption contribution in the United States dropped from its highest level by about 41% of energy consumption components to its lowest level in recent years at about 34%, but it rose steadily again to about 36% in the last four years, perhaps influenced by the sharp decline in prices and the significant increase in shale oil production there.
What do we infer from the above? It is a warning that growth in energy consumption has become at the expense of fossil fuel, starting by its pollutant component, or coal, and the turn is coming to its largest contributor and the second major pollutant, namely oil. That should not scare us if we dealt with those facts with adequate awareness. The bigger harm to economic competitiveness and the human in oil-producing countries happened in the oil market boom era and its abundant revenues. The fading of the oil age will not happen tomorrow. Time and resources are enough to achieve the goal of safe landing from the consequences of its scarce revenues; however, achieving this is almost impossible if we are unaware of the importance of time factor and prudent management.
The required action involves two stages. The first one is to extinguish the likely public finance burning, i.e. adopting a financial policy which is completely different from what we used to. Without the assurance of sustainable public finance, any economic construction process would never succeed. The second stage, the economic reconstruction, and there is no harm if it starts in parallel with the drawing and adopting rules of extinguishing the public finance fire, aims at devoting all human potentials and financial resources to the service of declared goals of development to create enough jobs. We will not argue too much about whether the target is to turn into a commercial, oil or financial center. We mean we should find alternative uses to crude oil. With these choices comes the promotion of business, medical and education tourism as complementary goals.
National Bank of Kuwait Financial Results – First Half 2017
NBK announced results of its operations for the first half of 2017 which indicate that the bank’s net profits, after deducting taxex, scored KD 173.9 million, rise by KD 15.5 million, or by 9.8% visa-vis KD 158.5 million in the first half of 2016. The bank achieved net profits relevant to the shareholders about KD 164.7 million, compared with KD 150.6 million in the same period the previous year, a rise by KD 14.1 million. The rise in the bank’s profits is due to the rise in total operational incomes by a higher value than the rise in total operational expenses.
In details, net operational incomes increased by KD 36.7 million, or by 10.1%, and scored KD 398.8 million, compared with KD 362.1 million in the same period of the previous year. It resulted from the rise in all items of operational incomes, except for the item of net gain from dealing in foreign currencies which dropped by 5.1%. Item of interests’ income (excluding income from Islamic financing) rose by KD 35.5 million and with it rose expenses (excluding murabaha expenses) by KD 12.7 million. Therefore, net interests incomes increased by KD 22.7 million. The bank achieved net incomes from Islamic financing by KD 53.2 million versus KD 45.8 million for the same period of previous year. Therefore, the net interests’ incomes increased (traditional and Islamic components) to KD 305.2 million compared with KD 275.1 million, a rise by KD 30.1 million. Likewise, item of net investment income rose by KD 6 million and scored KD 10 million compared with KD 4.1 million.
Total operations expenses increased by a lower value than the rise in total operational incomes by about KD 2.9 million, or by 2.3%, and scored KD 125.7 million, compared with KD 122.8 million in the first half of 2016. Percentage of total expenses to total incomes scored 31.5% versus 33.9%. According to AlShall estimations, assuming the exclusion of the impact of consolidating Boubyan Bank’s results on operational expenses, we note a decrease in operational expenses from about KD 101.3 million to about KD 100.5 million or decreased by 0.8%. Total provisions scored KD 85.8 million, rose by KD 19.2 million compared with KD 66.6 million.
Financial statements of the bank indicate the bank’s total assets increased by KD 1.248 billion, or by 5.2%, and scored KD 25.453 billion compared with the end of 2016. It rose by KD 1.385 billion, or by 5.8% growth rate, if compared with the total in the end of the first half of 2016. Excluding the impact of consolidating Boubyan Bank, it would increase by 5.1%. Portfolio of loans, advances and Islamic financing to customers, the largest contributor of the bank’s assets, increased by 5.3%, or about KD 715.1 million, raising the total portfolio to KD 14.327 billion (56.3% of total assets) versus KD 13.611 billion (56.2% of total assets) in December 2016. It increased by KD 623.7 million, or by 4.6% growth rate, if compared with the first half of 2016. If we exclude the impact consolidating Boubyan Bank in its Islamic finance part, growth rate would score 1.8%. Percentage of non-performing loans to the total credit portfolio scored 1.2% in the end of June 2017, compared with 1.4% in the end of 2016. The coverage percentage of the non-performing loans increased by 371%, compared with 330%.
Figures indicate that the bank liabilities (without including total equities) increased by KD 1.252 billion, or by 6%, and scored KD 22.052 billion, compared with the end of 2016. It increased by KD 1.346 billion, or by 6.5%, compared with the total in the end of first half of the previous year. Excluding the impact of consolidating Boubyan Bank, the growth rate would score about 5.9%. Percentage of total liabilities to total assets scored 86.6%, compared with 86%.
Results of analyzing financial statements calculated on annual basis indicate that all bank’s profitability indexes rose compared with the same period of 2016. The average return on assets (ROA) increased to 1.4% versus 1.3%. The average return on equities relevant to the bank’s shareholders (ROE) rose to 11.4%, compared with 10.8%. Likewise, the average return on capital (ROC) rose to about 60.2% versus 59.4%. (EPS) rose to 27 fils, compared with 26 fils for the same period in 2016. (P/E) scored 12.5 times compared with 11.3 times, due to the rise the market value per share by 14.4%, a lower rise in the earning per share (EPS) by 3.8% on June 30, 2016. (P/B) scored 1.2 times compared with 1 time.
The Weekly Performance of
Boursa Kuwait
The performance of Boursa Kuwait for last week was more active compared to the previous one, where all indexes showed an increase, the traded value index, the traded volume index, number of transactions index, and the general index, AlShall Index (value weighted) closed at 397.9 points at the closing of last Thursday, showing an increase of about 11.3 points or about 2.9% compared with its level last week, and it increased by 34.9 points or about 9.6% compared with the end of 2016.