The total government spending in Kuwait is expected to reach KD21 billion ($73.7 billion), a small drop from a year earlier, mainly due to a decline in spending on goods and services, said a report.

The recently-released detailed figures for the much-delayed government budget for fiscal year 2013/14 (April to March) are more or less in line with expectations, the National Bank of Kuwait said in its monthly review.

Overall expenditures are due to decline one per cent year-on-year in budget-on-budget terms, driven mostly by a projected decline in current spending. On the face of it, this is disappointing news for an economy heavily influenced by government spending and in need of a shot in the arm, the NBK report stated.

However, the headline figures may not be a good indicator of the true stance of fiscal policy; the underlying story should be more positive, it added.

Within the overall total of KD21 billion, current spending is set to decline one per cent. The drop is attributed to a projected 7 per cent y/y decline in spending on goods and services, driven by a fall in the cost of purchasing fuel.

Since the government is the major provider of electricity to the domestic market, this is a large budgetary item, by itself accounting for 15 per cent of all current spending. Excluding this item, current spending is budgeted to rise by 1 per cent y/y, said the NBK report.

Elsewhere in current spending, civilian wages and salaries are projected to see a one per cent rise, the smallest increase for many years. The increase is affected by a sharp fall in ‘supplementary appropriations’, which are sometimes used as a contingency or to finance expenditure commitments made after departmental targets have been agreed.

As such, the figures may not be a reliable guide to the strategic direction of employment-related spending going forward. Civilian wages and salaries account for 28 per cent of all current spending (and total employment costs around 50 per cent), said the top Kuwaiti lender in its report.

According to NBK, the capital spending is budgeted to dip by three per cent y/y to KD2.6 billion, its second consecutive annual decline.

The fall is driven by a 24 per cent cut in budgeted capex on electricity and water, which had seen a rapid build-up in recent years as new utility infrastructure was brought on stream, it added.

On the income side of the budget, NBK said the total government revenues are projected to leap by 30 per cent to KD18.1 billion. Underlying this is a more upbeat assumption on oil output, which is expected to average 2.7 million barrels per day, up 23 per cent on a year earlier.

Oil prices, meanwhile, are assumed to average $70 per barrel, up from the $65 assumed for FY12/13. Oil revenues are projected to reach KD16.9 billion, or 93 per cent of total revenues. Non-oil revenues are projected to rise a more modest 4 per cent to KD1.2 billion, on the back of rising customs duties and utilities charges, said the NBK report.

"Although it is still early days for prices and production, our base case forecast sees oil revenues reach KD 27.2 billion this year, 61 per cent higher than the government’s conservative projection," said the top lender.

"Similarly, non-oil revenues are likely to finish higher than the record KD2 billion that they reached last year. In our view, these could help generate a budget surplus in the region of 20 per cent of GDP – lower than the 25 per cent for last year, but an extremely robust figure nonetheless," it added.-TradeArabia News Service