Kuwait plans to increase spending by 9.3 percent in the current fiscal year, as the International Monetary Fund forecasts a slowdown in the economy of OPEC’s third-biggest producer.
The 2012-2013 budget, approved late yesterday by the Cabinet, has projected spending of 21.2 billion dinars ($75.5 billion), above expenditures of 19.4 billion dinars forecast in the last fiscal year that ended on March 31, state-run KUNA news agency reported, citing Finance Minister Nayef Al-Hajraf. Revenue is forecast at 13.9 billion dinars. KUNA didn’t say what oil price the budget is based on.
“It’s good news, because the initial spending forecast was 22.7 billion dinars,” Jassim Al-Saadoun, head of Kuwait-based Al-Shall Economic Consultants, said by phone today. “Spending is still too high and unsustainable, and in the medium to long term it will be disastrous.” Spending projections include about 9 billion dinars for salaries and wages, he said.
While Kuwait’s economy grew 8.2 percent in 2011, it was the slowest among the six Gulf Cooperation Council countries in the previous five years. The IMF forecasts economic growth at 6.3 percent this year and 1.9 percent in 2013.
Kuwait will exhaust all oil revenue by 2017 if the government’s current spending policy continues, the IMF said in May. Current spending is “very high” and must be reduced with more going toward investments and capital expenditures, central bank Governor Mohammad Al-Hashel said on Oct. 1. His predecessor of 25 years, Sheikh Salem AbdulAziz Al-Sabah, resigned in February, criticizing the government’s increase of public expenditures “to unprecedented levels.”
Al-Hajraf said last month the government will raise revenue allocations to its Future Generations Fund this fiscal year to 25 percent from 10 percent to “encourage saving.” The decision won’t be at the expense of capital spending, he said.
Kuwait posted a record surplus of 13.2 billion dinars in the last fiscal year as oil prices and output rose. Government revenue was 30.2 billion dinars, including oil revenue of 28.6 billion dinars, and spending was 17 billion dinars, 12.5 percent below budget.
The budget will be issued by a decree from the emir that needs to be approved by the new parliament when it is elected.