Kuwait may turn budget deficit to surplus

Kuwait's parliament yesterday passed a 5.274 billion dinar ($17 billion) budget for 2001-02 when it could once again transform a large projected deficit into a surplus due to higher oil prices.

Officials say the 1.826 billion dinar deficit for the year which started on April 1 would disappear if Kuwaiti crudes averaged above $22 a barrel, compared with $15 used to calculate oil income in the new budget.

"A more likely scenario is for the price of Kuwaiti crude to stay above $24 per barrel and spending to come below budget," National Bank of Kuwait said in a study. "This implies a possibility of a surplus between 0.75-1.25 billion dinars."

The budget was passed by 35 votes out of 43 deputies present following a heated debate over three days, including two secret closed-door sessions and a marathon 11-hour discussion on Wednesday. Eight members of the elected parliament abstained.

Leading Kuwaiti economist Jasem al-Saadoun said Kuwait could end the fiscal year with an almost balanced budget. "There will be a slight surplus or small deficit with Kuwait crudes averaging $8 above the budget estimate," he told Reuters, adding that Opec would most likely stick to policies to shore up world prices around the $25 a barrel mark.

Kuwaiti crudes are currently selling between $19.42-$23.57 a barrel after averaging almost double a $13 estimate used to calculate revenues in the state's budget for the nine-month fiscal period July 2000-March 2001.

Total revenues, according to Central Bank figures, were around 4.942 billion dinars for the period — including 4.529 billion dinars from oil — compared with a projected total of 2.307 billion dinars and 1.927 billion from oil.

The new budget is projecting a total income of 3.832 billion dinars — including 3.263 billion dinars from oil exports. Instead of a gross projected deficit of 1.517 billion dinars, economists expect Kuwait to show a gross surplus of 1.5-1.7 billion dinars for the nine months to end-March 2001. It earned 4.795 billion dinars from oil in 1999-00.

By law, 10 per cent of total revenues, even in years of deficit, go to the state's Kuwait Investment Authority (KIA) which runs a foreign portfolio of over $60 billion. In the new budget, the manager of the nest egg is allocated 383.15 million dinars which rise if actual income increased.

Because of the 10 percent payment, Kuwait reports net and gross budget figures. KIA's earnings are off budget, making oil almost the sole source of income. The 2001/02 net deficit is projected at 1.443 billion dinars. Deficits are covered from state reserves.

Despite the recent surpluses after years of large deficits following the devastation of a seven-month Iraqi occupation, Kuwait has yet to tackle revolutionary economic reforms. The main expenditure in state budgets are relatively high salaries and generous benefits for Kuwaitis employed by the state and accustomed to a cradle-to-grave welfare system.

Salaries and related costs, estimated at 3.158 billion dinars, will consume almost all of the projected oil income. But the government has plans to encourage Kuwaitis to flock to the private sector and also cut consumption by raising prices for large users of basic services which are heavily subsidised.

But the approved budget does not include new costs which politicians expect the government to try and push through parliament following a long summer recess as part of the far reaching economic reform plan already in motion.

Some 94 percent of about 230,000 Kuwaitis in the workforce are employed by the government and state bodies in the Gulf Arab state of some 825,000 Kuwaitis and 1.4 million expatriates.

Some 500 million dinars, an annualised rise of 10 per cent, are earmarked in the new budget for infrastructure projects - funds which could have a postive impact on a state-dominated economy suffering of a slowdown due to spending curbs to contain a growing deficit when oil prices fell below $10 a barrel.

Kuwait also plans to spend 200 million dinars in the new fiscal year on arms after reviving shelved requirements including one for some four off shore missile vessels, defence sources said. The arms shopping list also includes a command and control defence system, helicopters and crucial maintenance deals.