Data released by the Ministry of Finance showed a realised budget surplus of KWD12.9bln in fiscal year 2013/2014, which is higher by about 1.6% compared to the KWD12.7bln surplus realised in the preceding fiscal year. This is the 15^th actual surplus in a row and the second highest absolute number.

Total actual expenditure in the fiscal year 2013/2014 was at KWD18.9bln, showing savings of about KWD2.1bln or 10% of the allocated budget for expenditures of KWD21.0bln. Furthermore, there was a significant amount of saving in the Construction Projects, Maintenance and Public Acquisitions expenses as part of the budget. Its actual expenses amounted to KWD1.5bln, out of KWD2.2bln allocations in the budget, bringing the savings percentage to 31.1%, or KWD691.2mln which represents the largest saving in terms of absolute figures. This is mainly due to the delays in the implementation of Kuwait’s previous development plan and infrastructure projects that have been in the pipeline in the recent past.

Total received revenues in the fiscal year 2013/2014 scored KWD31.8bln while total estimated revenues in the budget was at KWD18.1bln. The increase in total received revenues amounted to KWD13.7bln, showing an increase over the estimates by about 75.8%. Actual oil revenues were at KWD29.3bln, reaching about 92.1% of total received revenues, showing an increase of KD12.4bln over the budget estimated figure of 16.9bln – an increase over the estimated by about 73.5%. The budget forecast oil production of 2.7mln barrels per day (down from 2.8mln in 2013). As usual, the oil price has been estimated conservatively – at USD75 per barrel, up from USD70 per barrel in the previous year’s budget.

Kuwait is expected to keep expansionary fiscal policy in the medium term although the government is determined to rein in higher current spending. Also, oil income declined given the prevailing conditions, and oil revenues fell by 43.6% in 2013, with Iran and Libya coming back into production. A smaller budget surplus is expected going forward due to higher spending as well as the lower oil revenues. However, the government had previously shown its inability to utilise the full capacity of its budgeted investment; oil revenues will ensure fiscal balance remains in surplus. We continue to forecast a surplus of 17.9% in FY2014/15.

The government has indicated few scenarios of fiscal balance based on several oil assumptions:

1.    If oil prices dropped to the unlikely level of USD80 a barrel, it would record its first budget deficit since the 1990s as early as next year (government’s forecast: -3.0% of 2014 GDP).

2.    If oil prices remained at the current level of USD100 a barrel, Kuwait would record a deficit of KWD635mln or 2.3% of GDP in FY2017/2018 and accumulate deficits totalling KD177.9bln by FY2034/2035.

3.    The government’s third scenario is based on the assumption that oil prices will rise to USD120 a barrel, delaying a deficit until FY2022/2023.

The third assumptions are in line with international organisations such as the International Monetary Fund (IMF) and the World Bank. The International Monetary Fund (IMF) has recently warned that government spending - inflated by public sector wages and a generous subsidies system -- could outpace revenue from oil exports in a few years. The IMF said that it will be important for Kuwait to restrain the rising public sector wage bill and subsidies because any sustained period of low oil prices could reduce its budget surpluses.