Kuwait projects huge bud­get deficit for sixth year in a row

Govt to push for se­lec­tive taxes • KD 16bn al­lo­cated for wages and sub­si­dies

Kuwait Times - - Front Page - By B Iz­zak and Nawara Fat­ta­hova

KUWAIT: The Cab­i­net yesterday ap­proved the 2020/2021 bud­get pro­ject­ing yet another huge deficit for the sixth year in a row due to lower oil prices and pro­duc­tion as Kuwait com­plies with the OPEC+ out­put cuts to sup­port prices. The deficit is pro­jected to reach KD 7.72 bil­lion, even higher than the cur­rent 2019/2020 fis­cal year, al­though the gov­ern­ment kept spend­ing un­changed at KD 22.5 bil­lion.

The bud­get short­fall grows even higher to reach KD 9.2 bil­lion af­ter the com­pul­sory 10 per­cent de­duc­tion from rev­enues - KD 1.48 bil­lion this year - for the Fu­ture Gen­er­a­tions Fund. Rev­enues are estimated at KD 14.8 bil­lion, some 6.0 per­cent lower than pro­jec­tions in the cur­rent year. Over 87 per­cent of rev­enues come from oil, whose in­come is pro­jected at KD 12.9 bil­lion, around 7.0 per­cent be­low this year’s es­ti­mates.

Rev­enue Kuwait earns from in­vest­ments through the sov­er­eign wealth fund is not in­cluded in the bud­get.

Fi­nance Min­is­ter Mariam Al-Aqeel said the bud­get deficit is due to low oil prices and lower pro­duc­tion due to Kuwait’s com­mit­ment to the OPEC+ cuts. The min­is­ter said the gov­ern­ment will likely draw from the state re­serve fund to plug the deficit gap, be­cause the Na­tional Assem­bly has re­fused to ap­prove the pub­lic debt law.

Aqeel said the gov­ern­ment plans to push for the ap­proval of the debt law to al­low the gov­ern­ment to bor­row to meet the bud­get deficit, be­cause bor­row­ing is cheaper than with­draw­ing from sov­er­eign wealth funds. The state has a sov­er­eign wealth fund worth more than $600 bil­lion, pro­vid­ing a cush­ion for state fi­nances. The min­is­ter said the gov­ern­ment also wants another re­form bill passed by the Assem­bly to al­low the gov­ern­ment to im­pose se­lec­tive taxes like other Gulf Co­op­er­a­tion Coun­cil (GCC) states.

Kuwait has only in­creased the prices of fuel for all and elec­tric­ity for ex­pats in a bid to cut the bud­get deficit, but has been un­able to im­pose other taxes due to strong op­po­si­tion from MPs, who in­sist that they will not al­low the gov­ern­ment to meet the bud­get deficit at the ex­pense of cit­i­zens and want the gov­ern­ment to stop squan­der­ing pub­lic funds first. The min­is­ter said over 71 per­cent or KD 16 bil­lion is al­lo­cated for wages and sub­si­dies, with the lat­ter ac­count­ing for KD 4 bil­lion half of it for fuel and power sub­si­dies. The gov­ern­ment also spends around KD 40 mil­lion for em­ploy­ing Kuwaitis in the pri­vate sec­tor.

Aqeel said that oil rev­enues are estimated at KD 12.9 bil­lion cal­cu­lated on the ba­sis of $55 a bar­rel. Oil prices cur­rently hover around $65 a bar­rel. She said that the breakeven oil price re­quired for Kuwait to post no deficit is $81 a bar­rel and rises to $86 a bar­rel if the de­duc­tion from rev­enues is counted. Al­though the gov­ern­ment has kept a lid on spend­ing, cap­i­tal ex­pen­di­tures rose to 16 per­cent of to­tal spend­ing. The bud­get will be­come ef­fec­tive only af­ter it is passed by the Assem­bly, most likely in June.

“We ex­pect an in­crease in oil pro­duc­tion af­ter the OPEC de­ci­sion ends, as it is

a tem­po­rary de­ci­sion. Ex­penses will be re­dis­tributed ac­cord­ing to pri­or­i­ties, which will help in pre­serv­ing the gen­eral re­serves more than ex­pected,” noted Khaled Mahdi, Sec­re­tary Gen­eral of the Gen­eral Sec­re­tariat of the Supreme Coun­cil for Plan­ning and De­vel­op­ment.

The 2020/2021 bud­get is a re­sult of joint work

be­tween the min­istry of fi­nance and the supreme coun­cil. “This bud­get in­cludes gov­ern­men­tal pri­or­i­ties and un­der­stand­ing of the present chal­lenges with­out af­fect­ing cap­i­tal and in­vest­ment spend­ing. Clear op­ti­miza­tion of this bud­get is seen in fixed cap­i­tal spend­ing of 16 per­cent,” he added.

“The deficit should drop by the end of this year as the price of oil is higher than the av­er­age price used for cal­cu­lat­ing the bud­get. We have ex­e­cuted and car­ried out many projects, but their re­sults won’t ap­pear in the bud­get be­fore ap­prox­i­mately two years,” stressed Ab­dul­gha­far Al-Awadhi, As­sis­tant Un­der­sec­re­tary for the Pub­lic Bud­get Af­fairs at the Min­istry of Fi­nance.

— Photo by Yasser Al-Zayyat

KUWAIT: Min­is­ter of Fi­nance Mariam Al-Aqeel speaks dur­ing a press con­fer­ence to an­nounce the bud­get for the up­com­ing fis­cal year yesterday.

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