KAMCO INVEST

Event Update – Kuwait Budget 2022/2023 November 2022

Kuwait parliament approves 2022-2023 budget with a deficit... The National Assembly of Kuwait approved the state budget for 20 22/2023 which forecasts a small deficit for the eighth consecutive year. The budget snapshot came as a surprise as the bulk of the GCC economies are expected to report surpluses. According to reports, the initial draft budget pointed to a surplus of around KWD 333 Mn during the fiscal year; however, an additional KWD 457 Mn in expenditure request from newly elected ministers were included in the updated document, thereby resulting in a deficit. These additional expenditures include KWD 300 Mn to pay for government staff willing to cash their annual leave and KWD 157 Mn to pay to frontline workers for the work done during the Covid-19 pandemic.

According to the budget document, revenue is expected to reach KWD 23.4 Bn (USD 75.5 Bn) during the fiscal year 202212023 as compared to KWD 10.9 Bn estimated for the fiscal year 202112022, up by 114.1%. The revenues are calculated with a budgeted crude oil price of USD 801b. This could mean that the actual revenues could be significantly higher as oil prices continues to remain elevated this year. Brent crude averaged at USD 105.5 per barrel since the start of the year, while Kuwait crude oil and OPEC crude basket averaged at USD 105.1 per barrel and USD 103.0 per barrel, respectively, according to EIA and Bloomberg. The budget assumes no transfers to the Future Generation Fund (FGF) for the current year and for 2022/2023 after the law introduced last year which said that would be no transfers to the FGF in years of deficits.

In terms of revenues, crude oil will continue to account for the bulk of the budgeted revenues in the fiscal year 202212023. The share of oil revenues to total revenues is expected to increase significantly from 83.5% estimated for fiscal year 202112022 to 91.0% budgeted for the fiscal year 202212023, according to data from Kuwait’s Ministry of Finance. This would imply non-oil revenue share of 9.0% for the fiscal year 2022/2023 as compared to 16.5% estimated for the previous fiscal year.

Total revenues at 8-year high

Total budgeted revenues for 2022/2023 is expected to more than double and reach an 8-year high level at KWD 23.4 Bn mainly backed by oil revenues which is also expected to reach an 8-year high level. Revenues from crude oil, based on the 91% share of total revenue as disclosed in the budget snapshot document from Kuwait’s Ministry of Finance, is expected to reach KWD 21.3 Bn for 2022/2023. This compares to a revenue of KWD 9.13 Bn estimated for the 2021/2022. Meanwhile, the share of oil revenue in total revenue is budgeted to be the highest in 9-years.

On the other hand, after seeing a decline last year, Kuwait’s non-oil revenues are budgeted to reach the second-highest level in eight years and highest since fiscal 2018/2019. In terms of y-o-y performance, non-oil revenues are expected to increase by 16.9% during the fiscal year 2022/2023 to reach KWD 2.1 Bn.

Budgeted expenditure expected to be at a record high this year

On the expenditure side, planned spending is expected to increase for the year. Total expenses in 2022/23 is budgeted to reach the highest level on record at KWD 23.5 Bn mainly led by an increase in salaries and subsidies this year. The share of salaries and subsidies in total expenditure is expected to increase from 71.6% in the last fiscal year to 75.0% in the fiscal year 2022/2023. It terms of y-o-y growth, the component is expected to show a growth of 6.9% which will more than offset the decline in capital expenditure and other expenses. Capital expenditure is budgeted to decline in the fiscal year 2022/2023 with planned spending of KWD 2.8 Bn as compared to KWD 3.5 Bn in 2021/2022, a y-o-y decline of 18.6%.

Higher than budgeted oil price to result in significant windfall

The budget for 2022/2023 is based on an oil price of USD 80/b while the budget for the previous fiscal year was based on an oil price of USD 45/b. Based on the expected revenues and expenditure, the state would require a breakeven oil price of USD 56.7/b to balance the budget, according to the IMF’s latest Regional Economic Outlook. Kuwait crude grade averaged at USD 107.3/b so far during this fiscal year (Apr-2022-Oct-2022) which is significantly above the budget price of crude for the year. As a result, oil revenue for the current year is expected to be higher than the budgeted revenues and final accounts for the year could see a significant surplus for the fiscal year 2022/2023.

This was also emphasized by the IMF which expects all GCC economies to report fiscal surplus this year, barring Bahrain. The projection from the IMF shows Kuwait showing the biggest fiscal surplus in the GCC at 14.1% of the GDP. Moreover, Brent crude is expected to average at USD 95.0/b in calendar quarters Q4-2022 and Q1-2023, according to Bloomberg estimates. This, we believe, would once again leave significant room for higher actual revenues and surplus in the fiscal year 2022/2023.