By Staff writer
BMI Research says fiscal deficits will only be temporary as recovering oil prices boost gov't coffers
Kuwait will post only temporary fiscal deficits, and the budget balance will turn back to surpluses by 2019, on the back of recovering oil prices, according to a new report by BMI Research, a Fitch company.
BMI Research said the country's public debt will remain negligible over the next decade despite oil prices set to remain relatively low - at an average of $67 per barrel over the next ten years.
It added that Kuwaiti authorities will look to increase non-oil revenues. The government will target fees - in particular for the expatriate community - and introduce VAT along with the rest of the GCC by 2018.
"These measures will fail to compensate for the fall in oil revenues, and we forecast total revenues to recover to their 2014 level only by the end of the coming decade," BMI Research said.
On the spending front, BMI Research said it believes that Kuwait will implement only limited reforms because its parliament will block many of the government's targeted cuts while very large foreign reserves will limit the risk of a full-blown fiscal crisis.
Foreign assets held by the sovereign wealth fund stood at $592 billion at the end of 2015, according to the Sovereign Wealth Fund Institute, more than enough to cover the forecasted temporary budget deficits, it added.
The report said public expenditure will increase at a much slower pace than over the past decade. Between 2006 and 2015, government spending growth averaged 18 percent, well above the 0.5 percent average forecast for the next 10 years.
BMI Research said that with falling revenues and limited cuts in spending, it forecasts Kuwait's fiscal balance to turn negative in 2016, and remain so only temporarily.
"In our view, the Kuwaiti government will face only three years of deficits (2016, 2017 and 2018). From 2019, oil prices will have recovered enough for the country's budget to return to surpluses," the report noted.
"For the rest of the decade, Kuwait will therefore post budget surpluses, albeit smaller than the ones recorded during the oil boom. As a result, the country's public debt - estimated at only 4.4 percent of GDP in 2015 by the IMF - will remain negligible," it added.
Like other GCC states, Kuwait's fiscal balance is dependent on the country's hydrocarbon exports. Oil revenues have accounted for more than 90 percent of all government receipts for more than ten years.
During the commodity boom years of 2007-2014, Kuwait's budget surpluses averaged 20 percent of GDP.