Fiscal plans include a drop of more than 6% in revenue for the year from April 1 while keeping spending unchanged
Kuwait on Tuesday unveiled budget proposals that forecast a wider deficit for the year starting April 1, outlining fiscal plans that include a drop of more than 6 percent in revenue while keeping spending unchanged.
The deficit is projected at KD9.2 billion ($30.3 billion), above the current year’s estimate of KD8.27 billion, Finance Minister Mariam Al-Aqeel said.
That’s after the transfer of 10 percent of total revenue to the Future Generations Fund, which invests abroad and is managed by Kuwait Investment Authority, the country’s sovereign wealth fund.
The budget shortfall will be financed by withdrawals from the state’s Treasury or the country’s General Reserve Fund, according to al-Aqeel.
The budget plan also says spending in 2020-2021 is estimated at KD22.5 billion, unchanged from the current year’s forecast.
Revenue is seen at KD14.8 billion compared to KD15.81 billion in the current budget while oil income is expected to reach KD12.9 billion, down from the current year’s estimate of KD13.86 billion.
Non-oil revenue is set to be at KD1.87 billion, an increase from KD1.25 billion this year.
Calculations are based on oil at $55 a barrel, the same as in the current year.
Deemed the “slowest reformer” among Gulf Arab economies, OPEC’s fourth-largest producer has lagged behind its neighbours in better managing subsidies and introducing taxes in the years since the slump in oil prices pushed its budget in the red.
Kuwait’s efforts haven’t got off the ground amid domestic political opposition and as the price of crude stabilised.
The lack of a new public-debt law has made it impossible for the government to finance its deficit by borrowing, forcing it to rely on the GRF’s assets instead. Parliamentary authorization to sell or refinance debt expired in 2017.
By keeping expenditure in check, Kuwait may be able to avoid withdrawing money from the GRF next year, according to Al-Aqeel. The Finance Ministry considers the public-debt law to be among the “important” reforms that “we see as necessary to be implemented,” she said.
“The debt law is in parliament, and it will help the government face the expenses,” the minister said. “The government will fight for getting this law approved since the cost of borrowing is less than the cost of withdrawing from the reserves.”
At current oil prices, Kuwait only has two fiscal years’ worth of liquid assets in its Treasury before it will need to tap its Future Generations Fund or bond markets. Either move would require parliament’s approval.
The prospect of new levies such as value-added tax might be even more remote this year as lawmakers gear up for parliamentary elections, with popular issues at the forefront. Tumultuous relations between the legislative and the executive, appointed by the country’s hereditary emir, have resulted in eight administrations in as many years.
“Rising financing requirements will further deplete easily available reserves without measures to increase revenue or cut spending, even if debt issuance resumes in fiscal year 2020/2021,” Krisjanis Krustins, a Hong Kong-based director at Fitch Ratings, said in a December report.