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Mon 19 Mar 2012 02:24 PM

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Kuwait eyes 13% budget rise amid industrial unrest

Budget for 2012/2013 fiscal year expected to total around US$79bn

Kuwait eyes 13% budget rise amid industrial unrest
Kuwait risks long-term trouble if wages keep increasing and oil revenues fall.

Kuwait's state budget for next fiscal year envisages a spending increase of about 13 percent from the current year's plan, state news agency KUNA reported on Monday as the oil-rich state grappled with a wave of industrial unrest.

The budget for the 2012/2013 fiscal year, which starts on April 1, is expected to total around KWD22bn (US$79bn), KUNA quoted the head of parliament's budget committee as saying.

That estimate assumes revenues of around 14 billion dinars, KWD12.8bn of which would come from oil, Adnan Abdulsamad said. The projection is based on an oil price of US$65 a barrel, KUNA added.

Although the plan assumes a budget deficit, global oil prices are currently trading well above US$100, so Kuwait could well post a surplus next fiscal year. For the first nine months of its 2011/12 fiscal year, the government recorded a budget surplus of KWD13.2bn.

"The government is right to be conservative in terms of its planning. However, the way oil markets look now it seems that oil prices are going to average well over US$100 a barrel in the coming months. Despite the spending increase, we do see another large surplus," said Daniel Kaye, senior economist at National Bank of Kuwait.

Nevertheless, state finances could come under pressure from wage increases granted because of the industrial unrest, which is partly due to increased union activity since last year's Arab Spring uprisings in the region, and follows a snap election last month which saw the Islamist-led opposition win control of Kuwait's parliament.

State-run Kuwait Airways staff are striking over pay demands and the national carrier was forced to cancel some flights for a third day on Monday. Customs workers started a walkout last week over pay.

"What is happening in Kuwait is beyond a state of chaos," the Kuwait Times wrote in a front-page opinion piece. "This time the government has to watch its steps very carefully and take urgent action."

According to next fiscal year's budget plan, wages for state employees would rise 7 percent. However, the government approved a 25 percent rise in pay for civil servants on Sunday and Abdulsamad told the al-Watan daily that the new increase had not been included in the budget plan.

Some unions remain dissatisfied with the promised 25 percent pay hike, arguing that the cost of living is rising - the average inflation rate climbed to a three-year high of 4.8 percent in 2011 - and that wage increases at management levels are not reflected lower down the payscale.

Government policymakers and economists say that while Kuwait can afford high pay increases in the short term, thanks to high oil prices, it risks longer-term trouble if wages keep rising and oil prices fall back.

One reason for Kuwait's recent budget surpluses is friction between the cabinet and parliament, which has stalled some major economic development projects and prevented some budgeted funds from being spent.

In the wake of last month's election, some analysts fear that relations between the cabinet and parliament could worsen further. However, Kaye at National Bank of Kuwait said he hoped projects would go ahead, supporting economic growth.

"In the past, the government has struggled to spend but we are hopeful that as we move ahead with the development plan, capital expenditures will increase somewhat from previous years," he said.