Kuwait's budget surplus in the first seven months of FY 2012-2013 reached KD 14.7 billion before the allocations to the Reserve Fund for Future Generations (RFFG), up from KD 12.6 billion at the end of the previous month. In its latest weekly economic report, issued on Wednesday, the National Bank of Kuwait (NBK) noted that government spending remained sluggish in the period between April and October.
Although some of this may be attributable to traditional underreporting issues - which exaggerate the weakness - spending also remains low in relation to previous years.
In combination with soaring oil revenues, soft spending levels continue to generate a huge run-up in the budget surplus.
The surplus is equivalent to 30 percent of annual 2012 GDP. Despite the prospect of additional surpluses in the remaining 5 months of the year, the final budget surplus for FY 2012/13 could still close at around KD 12.0 billion, as recorded spending typically accelerates in the final part of the year, the report said. Total revenues for the 7 months to October climbed to KD 18.9 billion, driven by a 17 percent y/y surge in oil revenues. This was supported by a 3 percent rise in Kuwait Export Crude prices and a 7 percent increase in oil production over the same period, though this does not explain the entire acceleration in oil receipts. Non-oil revenues, on the other hand, were down on lower miscellaneous revenues and fees, likely related to UN compensation payments, it showed. More than half way into the fiscal year, and only 20 percent of the amount budgeted for the entire year has been spent so far. Total government spending reached KD 4.2 billion in the 7 month period, compared to KD 6.1 billion a year ago, it added. Two government bodies - the Ministry of Public Finance (public accounts department) and the Ministry of Defense - accounted for more than half of this decline in total spending. But since part of this constitutes inter-governmental transfers, it could have had limited macroeconomic impact.
Current spending reached KD 3.8 billion, KD 1.7 billion lower than a year ago. The decline was mostly due to the volatile transfers segment: transfers to cover the actuarial deficit in the social security fund were KD 0.8 billion lower y/y, the NBK's report indicated. Spending on wages and salaries also continues to lag. But given high employment levels and wage pressures, this is likely to reflect reporting issues or time lags rather than anything more fundamental. Capital spending stood at KD 0.4 billion in the first 7 months, down from KD 0.6 billion a year earlier. The majority of the decline stemmed from reduced investment spending by the Ministry of Electricity and Water. This spending can be volatile and depend upon the project cycle. Meanwhile, the rate of capital spending picked-up to 16 percent of the full-year budget, compared to 13 percent at the end of the previous month, it noted. Nevertheless, this is still relatively weak given the 5-year historic average of 25 percent over a similar 7-month period, according to the report. Our estimate of demand-impacting spending*, which excludes some transfers and other items that have minimal effect on economic activity, reached KD 2.7 billion in the period. Even here, spending is KD 1.1 billion lower than the comparable period in the previous fiscal year. In summary, these data confirm that government spending levels have done little to provide the economy with a much-needed boost - while the budget surpluses continue to stack up, it said. Nonetheless, we remain hopeful that reported spending will accelerate in coming months as the government pushes forward with the implementation of its 4-year development plan, the report concluded