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Kuwait should make use of budget surpluses properly

The spare of fiscal year 2009-10 brings total accumulated surpluses over the past 11 years to $145 billion

Gulf News

Not surprisingly, Kuwait posted a comfortable surplus in fiscal year 2009-10, which ended in March, on the back of growing revenues and declining expenditures.

More specifically, the authorities prepared the budget with an income of $28.1 billion and expenses of $42.1 billion.

Yet, actual revenues and expenditures amounted to $61.5 billion and $39.1 billion, respectively. The outcome paved the way for a $22.4 billion surplus, in turn the third largest ever of its kind. In retrospect, Kuwait posted surpluses of $32.3 billion and $24 billion in fiscal years 2007-08 and 2005-06, correspondingly.

The spare of fiscal year 2009-10 brings total accumulated surpluses over the past 11 years to $145 billion. This is a sizable amount not least when compared to the country's gross domestic product (GDP) of $115 billion in 2009.

Still, the accumulated surpluses allow for diversifying the economy away from the petroleum sector. As such, authorities need to press legislators to reopen debates on all but stalled privatisation programme.

The plan includes selling off shares in institutions the government purchased through the Kuwait Investment Authority following the collapse of the unofficial stock market in 1982 and Iraqi invasion in 1990.

The privatisation drive should help broaden sources of revenue, subsequently reducing reliance on oil, which contributed 88 per cent of total treasury income in fiscal year 2009-10.

Undoubtedly, extraordinary reliance on the petroleum sector places Kuwaiti economy at the mercy of developments in international oil markets.

Of all Gulf Cooperation Council states, Kuwait's fiscal system remains the most dependent on the petroleum sector. For instance, oil contributed 76 per cent of actual treasury income to Bahrain's 2009 fiscal year.

Strangely enough, the government assumed an average oil price of $35 per barrel or $24.1 billion oil income for fiscal year 2009-10. However, actual oil income amounted to $57.6 billion reflecting firmer oil prices.

Anyway, it is believed that the authorities intentionally assumed relatively low oil price in order to fend off unlimited requests by legislators for steady increases in pay for Kuwaitis working in the public sector.

To be sure, even a slight rise in pay could prove to be costly, as 92 per cent of Kuwaiti nationals work in governmental departments and state-owned establishments.

Fact is the authorities continued the practice of spending less than allocated figures. Actual spending amounted to $39.1 billion or 93 per cent of the estimates. The cautious approach to spending runs contradictory to the global trend of dealing with the financial crisis.

Sustained public spending is viewed as the only way forward for dealing with adverse effects of the global financial crisis. Yet, Kuwaiti authorities overlooked the opportunity of maintaining and let alone increase public spending on the back of sharp rise in revenues. By contrast, fellow Saudi Arabia spent two per cent above the projected figure in fiscal 2009, which ended in December on the back of firmer oil prices.

In reality, government spending is uniquely significant to Kuwait's economy in many respects. For one, public spending makes up one third of the country's gross domestic product and thereby plays a key role in economic activities. For another, private sector investors look up to the public sector for economic leadership during troubling periods like the global financial crisis, which emerged in the second half of 2008.

All told, final results of fiscal year 2009-10 merely reconfirmed the traditional formula of revenues and expenditures being different from projected ones. Still, the conservative practice has its shortcomings, as it deprives officials of making full use of the fiscal policy. Already, the fiscal policy is constrained by the absence of a comprehensive taxation regime.


The writer is Member of Parliament in Bahrain.