Kuwait spending surges 14pc to $76bn
Kuwait, September 3, 2013
Kuwait government's spending for fiscal year 2012/13 (April to March) reached KD19.3 billion ($76.4 billion), up 14 per cent over last year, mainly driven by current expenditures rather than investment, said a report.
The current spending, which had looked on track to reach KD16 billion or so, ended up at KD17.5 billion, up 15 per cent y/y, the National Bank of Kuwait (NBK) stated in its report.
The surprise came mostly from a sharp rise in the large ‘miscellaneous & transfers’ spending category, which incorporates items such as military salaries, transfers to the social security fund and transfers abroad – all of which jumped in the final accounts. This segment accounted for 52 per cent of current spending, said the NBK.
Also in current spending, the civilian wages and salaries increased by a sizeable 18 per cent y/y to KD4.8 billion. This follows an even more impressive 20 per cent increase in the previous year.
The rise reflects a combination of employment gains – public sector hiring rose by some 10,000 in the year to June 2013 – and pay increases, including a 25 per cent increase in basic pay for Kuwaiti nationals, the country's top lender said.
In combination with high employment rates, these trends have helped support continued strength in the consumer sector, which has been the economy’s main bright spot for several years, it added.
According to NBK, the current spending was also boosted by a huge 32 per cent increase in spending on ‘goods & services’ which hit KD 3.6 billion.
"These mostly comprised inter-governmental transfer payments to cover the hypothetical cost of purchasing fuel from local refineries to supply power stations. The increase was trailed in the budget targets for the year, and is likely related to rising electricity output," the report added.
Kuwait's capital spending remained unchanged for the year at KD1.8 billion, partly a reflection of continued sluggish implementation of the government’s FY2010/11-13/14 development plan (not all of which appears on budget).
"The spending execution rate actually improved to 69 per cent last year from an especially soft 64 per cent a year earlier, thanks to a decline in the official budget target for the year. Soft investment spending continues to be one of the economy’s key weak spots," said the top lender.
Over the past five years, for example, government capital spending has grown by 7 per cent per year on average, compared to 16 per cent for current spending; as a share of total government spending, capital expenditures (capex) stand at 9 per cent, which remains low by regional standards.
In terms of its impact on the overall macro economy, NBK said the above spending figures suggest that fiscal policy was very supportive of economic growth last year.
"Once we strip out certain large items (some of which we have estimated) that have little or no impact on domestic demand – such as payments abroad and intergovernmental transfers – spending looks to have risen by some 15 per cent y/y. This compares to a small reduction the year before," it stated.
Unlike expenditures, NBK said the budget revenues were in line with its expectations, at KD32 billion, up 6 per cent y/y.
"The bulk of this was oil revenues, which reached an all-time high of KD30 billion. Although oil prices, at $106 per barrel, averaged a little lower than a year earlier, the impact on revenues was more than offset by a five per cent rise in oil production to 2.9 million barrels per day," said the report.
Kuwait and other Opec countries increased output to compensate for declining supplies elsewhere. Non-oil revenues also posted a solid-looking 22 per cent y/y increase to a record KD2 billion, driven by higher telecom charges and rising compensation payments from the UNCC.
The year ahead (FY13/14) is likely to see a further large budget surplus, though perhaps slightly lower than last year’s, stated the NBK report.
"With oil prices and production remaining high, revenues are likely to come in close to last year’s levels. The government has outlined a 1 per cent y/y drop in the budget spending target for FY13/14. But given last year’s under-spend, this still leaves room for a decent-sized increase in actual spending of five per cent or so while staying well within the budget target," he stated.
"This should provide continued support for the broader economy. Just as importantly, we look for capital spending to register a solid gain given recent signs that large government-led projects are at last beginning to get underway," he added.-TradeArabia News Service