(Bloomberg) — Kuwait forecast a narrower budget deficit for the fiscal year starting April 1, due to buoyant oil prices.
The deficit — which would be the ninth in a row — is projected at 3.1 billion dinars ($10.3 billion), down 74.2% from the current year’s estimate of 12.1 billion dinars, according to the Finance Ministry. Spending is to fall 4.8% to 21.9 billion dinars, with capital expenditure accounting for 13.2% of that sum.
Kuwait won’t be transferring 10% of total revenue to the Future Generations Fund, or sovereign wealth fund, under a 2020 law barring such transfers in deficit years.
“Next year’s budget projects higher revenue levels. However we were keen to maintain our cap on expenditure at KD 22 billion while maintaining healthy capital expenditure that is in line with previous years,” the country’s new finance minister, Abdulwahab Al-Rasheed said in a statement.
Al-Rasheed didn’t say how the budget gap will be financed. Political bickering has delayed a new debt law that would allow Kuwait to borrow, and the country hasn’t been to the market since a debut Eurobond in 2017. Lawmakers have opposed borrowing to cover the deficit, saying the government should better manage finances before resorting to debt.
Kuwait Posts Record $36 Billion Deficit on Oil Price Drop, Virus
Other highlights from the budget include:
- Revenue is seen at 18.8 billion dinars, up 72.2% from the current year
- Non-oil revenue is seen at 2.1 billion dinars, up 15.3% from the current year. Oil income accounts for 89% of revenue.
- Calculations are based on oil at $65 a barrel, up from the current $45, and a daily production rate of 2.7 million barrels per day; Kuwait’s breakeven point is $75
- Wages and subsidies account for 74.5% of the budget
“The FGF continues to perform and grow at a healthy rate,” according to the statement. “However, the General Reserve Fund, or Treasury, is near depletion due to increased withdrawals to cover the state’s expenditures.” The sovereign wealth fund, managed by the Kuwait Investment Authority, is the world’s third-largest.
The OPEC member, home to about 8.5% of the world’s oil reserves, posted a record budget deficit in the last fiscal year due to a cash crisis exacerbated by a plunge in oil prices and the coronavirus pandemic. Years of political tensions have stymied efforts to diversify the oil-reliant economy and promote foreign investment, leaving Kuwait particularly vulnerable.
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