By Tom Arnold
UPDATE1: National Bank of Kuwait paints upbeat picture for Kuwait budget as oil prices stabilise.
Kuwait is on track to record a budget surplus of KD 1.8bn ($6.1bn) to KD 3.7 bn ($12.6bn) for the fiscal year 2008 to 2009 following higher than expected oil revenues, according to a report from the National Bank of Kuwait.
The country was likely to record a budget balance ranging from a deficit of KD 1.7bn ($5.8bn) to a surplus of KD 7.1bn ($24.1bn) next year before payments of 10 percent of oil revenues to Kuwait’s Reserve Fund for Future Generations (RFFG), the government’s flagship investment vehicle, the report said on Sunday.
The report said even the bank’s worst case scenario was considerably better than that envisaged in the government’s budget, which projected a deficit of KD 4.2bn ($14.2bn), based upon an assumed oil price of $35 per barrel.
The bank made its projection based upon the assumption that spending would come in, as usual, five to 10 percent below the recently announced expenditure plans that had yet to be approved by Kuwait’s National Assembly.
The stronger US dollar had raised the value of Kuwait’s oil production in dinar terms, with the price of Kuwait export crude (KEC) averaging $78 to $79 per barrel for 2008-09, the report said.
Its estimated figures for Kuwait’s budget surplus for 2008-09 included exceptional transfers of KD 5.5bn ($18.7bn) to the Public Institution for Social Security but were before payments to the RFFG.
It said that weaker demand could keep oil prices close to current levels, meaning the price of KEC would hover just below $40 for 2009, before a bounce back in crude prices in 2010.
But it said if OPEC implemented its already announced quota cuts in full, while demand fell by a modest 0.7 million barrels per day, the price of KEC would be back above $80 by the end of 2009 and average $70 during 2009-10. However, such a move by OPEC risked leaving the world economy considerably weaker and undermining global demand for oil in 2010, the report said.