Kuwait increases spending in new budget

Kuwait on Jan. 25 unveiled a budget for its coming fiscal year with a breakeven crude price of $90/b and significant deficit spending, with higher expenditures eating up a significant portion of its projected increases in revenues.

The shortfall is projected at 12.1 billion dinars ($40 billion), 13.8% below the current year’s estimate of 14 billion dinars, according to the finance ministry. Kuwait won’t be transferring 10% of total revenue to the Future Generations Fund, or wealth fund, in line with a law passed by parliament last year to halt such transfers in years of deficit. The move was part of a series of urgent measures aimed at preserving liquidity in the General Reserve, or treasury, which is being rapidly depleted due to a drop in the price of crude, the main source of income for the Gulf Arab state.

Finance Minister Khalifa Hamada said in a statement Monday: “The budget “is not immune to the global challenges brought on by the Covid-19 pandemic and lower oil prices. We are in a transitional phase that requires concerted efforts for economic recovery and growth. Budgeted capital expenditure is up 20% on the current year’s estimate”.

The minister didn’t say how the budget gap will be financed. Kuwait still doesn’t have a public debt law enabling it to borrow and hasn’t been to the market since a debut Eurobond in 2017.

Lawmakers have opposed borrowing to cover the deficit and say the government should better manage finances before resorting to debt. That’s left investors facing uncertainty.

Oil-dependent Kuwait has been left particularly exposed to the price crash since it derives about 50% of GDP, more than 90% of exports, and about 90% of fiscal receipts from hydrocarbon products.

Kuwait's current crude production was 2.30 million b/d in December, according to the latest S&P Global Platts survey of OPEC+ output, largely in line with its quota.

"As OPEC+ oil production quotas ease this year, Kuwait's oil sector will begin to positively contribute to GDP growth in the middle of the year. But after last year's elections saw opposition candidates dominate the National Assembly, political infighting will persist and make it more difficult for Emir Sheikh Nawaf to pass reforms," a Jan. 22 research note from Capital Economics, a London-based consultancy stated.