(Bloomberg) -- Kuwait forecast its eighth consecutive budget deficit for the year starting April 1, unveiling a fiscal plan that sees a near-7% rise in spending as political bickering delays reforms and stymies borrowing.
The shortfall is projected at 12.1 billion dinars ($40 billion), 13.8% below the current year’s estimate of 14 billion dinars, according to the finance ministry. Kuwait won’t be transferring 10% of total revenue to the Future Generations Fund, or wealth fund, in line with a law passed by parliament last year to halt such transfers in years of deficit. The move was part of a series of urgent measures aimed at preserving liquidity in the General Reserve, or treasury, which is being rapidly depleted due to a drop in the price of crude, the main source of income for the Gulf Arab state.
The budget “is not immune to the global challenges brought on by the Covid-19 pandemic and lower oil prices,” Finance Minister Khalifa Hamada said in a statement Monday. “We are in a transitional phase that requires concerted efforts for economic recovery and growth.” Budgeted capital expenditure is up 20% on the current year’s estimate, he said.
The minister didn’t say how the budget gap will be financed. Kuwait still doesn’t have a public debt law enabling it to borrow and hasn’t been to the market since a debut Eurobond in 2017. Lawmakers have opposed borrowing to cover the deficit and say the government should better manage finances before resorting to debt. That’s left investors facing uncertainty.
S&P Global Ratings said it could downgrade the Gulf nation over the next six to 12 months “if Kuwait’s institutional settings prevent the government from finding a long-term solution to its funding needs.”
Other highlights from the budget plan include:
- Spending in 2021/2022 is estimated at 23 billion dinars, 6.9% higher than the current year
- Revenue is seen at 10.9 billion dinars, compared with 7.5 billion dinars in the current budget
- Oil income is expected to be 9.13 billion dinars, or 83% of income.
- Non-oil revenue is seen at 1.8 billion dinars
- Calculations are based on oil at $45 a barrel, up from the current $30, and a daily production rate of 2.4 million barrels per day; Kuwait would need crude to average $90 to balance the budget
- Wages and subsidies account for 71.6% of budget; capital expenditure are 15% of total spending
Political bickering has disrupted and delayed reform as the government and parliament remain at loggerheads over how best to cut spending and secure alternative sources of income. Kuwait’s ruler this week reappointed Sheikh Sabah Al-Khaled Al-Sabah as prime minister, and asked him to form his third cabinet in just over a year.
The government’s resignation earlier this month was forced after a majority of lawmakers backed a request to question the premier, a move that could have led to his dismissal. They vowed to proceed with the questioning bid once a new cabinet is formed and parliament can convene.
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