‘Fund public expenditures from renewable source’
KSE liquidity in March up m-o-m
Financial and Economic Reform
Document
government submitted a document titled “Measures Supporting the Financial and Economic Reform Track”. What we have is the main points presented in the document, we tried to find if the government has a detailed business plan, or a financial/economical model like that of the companies when they go for restructuring, but we were not able to find such a study, says Al-Shall economic report prepared by Al-Shall Consulting Co headed by Jassem Al-Saadoun.
The document with the available information in hand is nothing but copying and repetition of the various development plans wishes. Titles are correct but their implementation is in the opposite direction. In brief, time and the critical conditions have bypassed those wishes and titles. They warrant main surgery. Wishes are no more than un smart attempt to buy more time until the summer of 2017 when the new public administration both executive and legislative are formed after one and half years have been lost since the sharp relapse for the oil market without adopting any measurement.
The document talks about mega projects, 12 -in fact 11- projects in partnership with the citizens. Huge costs are stated without any mention to figures of job opportunities, which are more important, and their relation with stated goals of development. The document states there will be great expansion in construction of power plants to cope up with the great expansion in horizontal housing from border to border without any mention to its sustainability and impact on oil consumption at the expense of its export.
The document talks about reduction of committees, conferences, meetings, costs but it ignores the talk about corrupted major projects whose costs are doubled the normal costs of similar projects in the world and at half efficiency. The document talks about figures assigned to finance small and medium enterprises which are the largest in creating jobs in the world. It however mentions consciously or unconsciously that 2727 projects will create in four years about 3500 job opportunities only. This means 1.3 job opportunities per project at a cost of KD 134,000 per each created job. The country has the largest government in the world compared to its size. It employs 75% of the indigenous workforce and subsidizes others. It has 35 councils and parallel authorities to the ministries. Nevertheless, its services are the worst; in some cases, offices, companies and contracts do works on behalf of the government ministries and government entities. The government did not address disposal of its “white” elephant. Had the document been serious in confronting requirements of halting waste, its measures would have involved all the foregoing examples and much more. But this is the philosophy of escaping assuming its real responsibilities.
The surgery requires a fundamental and essential change in the state’s financial policy. Sustainability is not a slogan but a convincing measure. The basis is funding public expenditures from a renewable source so that oil, which is an exhaustible wealth, is just a contemporary supplement in funding those expenses. The procedure is by relying the foreign investments’ income as a main source of financing after a basic transformation of in their function without affecting their origin. Sound taxation policies stated in the document come next as a secondary and supplementary source, like income taxes, profits, added value, commodities and subsidized services and utilizing state’s domains. Finally, oil income steps in to cover deficit by a small fixed percentage in the first year and will gradually decrease until it diminishes. A good example would be copying the Norwegian experiment.
It is a public administration struggling to pass insignificant partial matters and will fail in passing the major portion. But what it is doing conforms to logic. The administration which failed to understand all warnings it received that this day is inevitably coming and it acted to the contrary cannot undertake to solve a problem of its own creation. The real crisis lies in the determination to continue it.
Oil and Public Finance – March
2016
The Fiscal Year 2015/2016 ended last Thursday. As a reminder, expenditures allocations in the budget were estimated by KD 19.171 billion. Total revenues estimates were at KD 12.211 billion with KD 10.757 billion, 88.1%, thereof as oil revenues. Oil revenues were estimated based on the following: crude oil production by 2.7 million barrels per day; an estimated price of crude oil at US$ 45 per barrel and exchange rate of the US dollar at 290 fils. Non-oil revenues were estimated at KD 1.453 billion. Therefore, the hypothetical deficit of the budget scored KD 6.690 billion without deducting the 10% of total revenues in favor of the interest of future generations reserve. But what matters are the actual results in the final account.
Preliminary data indicate a noticeable drop in total received revenues below its counterpart amount in the last fiscal year. This resulted mainly from the drop in oil prices whose average price in the FY 2015/2016 scored US$ 42.7 per barrel which is lower by US$ -2.3 per barrel, -5.1%, than the budget hypothetical price. It is also less by US$ -38.6 per barrel, -47.5%, than the average Kuwaiti oil price per barrel for the past fiscal year 2014/2015 at US$ 81.3 per barrel.
According to figures published in the monthly follow up report of the State’s financial accounts for December 2015 issued by the Ministry of Finance, Kuwait achieved actual oil revenues until the end of last December — 9 months — about KD 10.523 billion. Kuwait is supposed to have achieved about KD 13.5 billion in oil revenues in the entire current fiscal year, which is 25% higher than the estimated oil revenues in the budget for the entire fiscal year estimated at KD 10.757 billion, Kuwait also achieved an amount of KD 858.2 million in actual non-oil revenues and will increase to KD 1.2 billion in the 12 months’ period. Therefore, projected total revenues will score about KD 14.7 billion during the current fiscal year.
If that were achieved, and assuming spending all budget estimate at KD 19.2 billion without deducting what is forwarded to the — Future Generation Reserve — because it is meaningless once deficit occurs and is financed by the general reserve or by borrowing guaranteed by the future generations reserve, actual deficit would score KD 4.5 billion. But the deficit figure will be less and will be reduced by any deduction from the budget estimated costs when the actual expenses are reviewed and audited in the final account.
Under all circumstances, the current fiscal year will achieve the first financial deficit in 16 fiscal years.
Kuwait Stock Exchange Liquidity
Features – March 2016
Stock market liquidity during March 2016 (23 working days) achieved an average daily trading by about KD 14.3 million which is higher by 26.9% than the average daily in February 2016. It dropped by -10.2% vis-à-vis 2015 average daily trading. When compared with March 2015, we note it declined by -10.4%. The market added liquidity in the amount of KD 328.7 million raising the total liquidity in three months to about KD 835.9 million. Price index gained 0.4% in March compared with February 2016 closing influenced by the rise in prices of some small companies.
Adopting the same measurement tool, i.e. following up the share of the top 30 companies from trading value, we note that these companies captured about 78.1%, or KD 653 million of market liquidity representing about 67.7% of its total capital value. Number of speculation companies within the sample was 10 companies which captured 11.8% of total market trading value (KD 99 million) while their market value equaled 1% only of total value of market companies. Figures indicate a drop in their contribution in market liquidity compared with the same number of companies which captured 12.4% of total market liquidity, in the end of February 2016.
The turnover average index of all market companies may provide us with a different perspective to look at the speculation sharpness. The index measures the percentage of trading value of the company shares to its market value. While this turnover average continued weak for all market companies at about 3.4% (13.5% on annual basis) and weak within the 30-company sample with the highest liquidity at about 3.9% (15.6% on annual basis), it scored about 38.5% for the 10 companies (154.1% on annual basis). It scored about 303.6% for the highest company, 219.4% for the second highest company and 69.1% for the third highest company. Despite their high rise, if calculated on annual basis, they remain much lower than their turnover rates in March 2015.
Kuwait Stock Exchange Perfor
mance – March 2016
KSE performance during March was positive compared with February 2016. The market received some support during the month influenced by the recent positive financial results announced by some companies and banks for 2015, As a result, all indexes of value, volume, number of transaction and the general index (AlShall index) went up. AlShall index reading on Thursday, March 31, 2016 scored 341.6 points scoring a slight increase by 0.5 points, or by 0.1%, compared with its closing in the end of February 2016 which was at 341.1 points. The highest index reading during the month was at 352.6 points on March 11, 2016 and the lowest was at 333.8 points on March 27, 2016.
The price index rose to 5,228.8 points in the end of March 2016 (5,207.4 points in the end of February), up by 0.4%. Likewise, the weighted index rose and scored 359.8 points (358.3 points in the end of February 2016), 0.4% gain. Likewise, Kuwait 15 Index rose by about 1.1%. When we compare the performance of the three indexes (price, weighted, and Kuwait 15) with their performance levels in March 2015, we note their drop by (-16.8%, -15.8%, and -16.7%) respectively.
Total value of traded shares during the month (23 working days) scored KD 328.7 million rising by KD 103.5 million, or by 46% compared with KD 225.2 million in the end of February 2016. But it dropped by -10.4% if compared with March 2015. The highest trading value in one day during the month was at KD 25 million on March 30, 2016. The lowest trading value was on March 10, 2016 at KD 9.2 million. The daily average value of the traded shares scored KD 14.3 million (KD 11.3 million in February 2016), a rise by 26.9%. The banking sector took the lead among sectors in liquidity and secured KD 114.4 million, 34.8% of the total market trading value. The financial services sector came second by 18.6%, followed by the real estate sector by 13.6%.
Market value of all listed companies -188 companies- during March scored about KD 24.8 billion rising by KD 200.7 million, compared with February 2016. It however dropped by KD 1.359 billion, -5.2% when we compare their value between the end of December 2015 and the end of March 2016 (for 188 common companies). It is worth mentioning that the number of gainers compared with the last trading day in 2015 was 51 companies out of 188 companies. 121 companies recorded varying losses in their values while value of 16 companies did not change. “GFH Financial Group” scored the highest rise in value by 76.3% increase. “Credit Rating & Collection Co” came second and rose by 40.5% rise. On the other hand, “Taiba Kuwaiti Holding Co” scored the highest loss in its value by -75% drop in value. “Zima Holding Co” came second in losses by -54.3% loss of its value.
Four sectors, out of 12 sectors, achieved rise including the consumer goods sector scored the highest rise by 13.2%. The technology sector came second by 10.4%. The banking sector scored the highest drop by -9.8%.
The following graph illustrates the distribution of market value according to sectors as of the end of March 2016.
The Weekly Performance of Kuwait
Stock Exchange
The performance of Kuwait Stock Exchange (KSE) 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, the number of transactions index, and the general index also showed an increase, AlShall Index (value weighted) closed at 341.6 points at the closing of last Thursday, showing an increase of about 2.9 points or about 0.9% compared with its level last week, while it decreased by 24.3 points or about 6.6% compared with the end of 2015.
The following tables summarize last week’s performance of KSE