Here Is a Gulf Economy That'll Boost Capital Spending in 2016By
Kuwait's plan aims to boost economic growth amid oil slump
OPEC's fifth largest producer plasn to cut current spending
Kuwait is planning to increase spending on infrastructure in 2016 as OPEC’s fifth-largest producer seeks to offset the impact of lower oil prices on economic growth, Finance Minister and deputy premier Anas Al-Saleh said.
The government will reduce current spending, which typically includes subsidies and wages, to shore up public finances, Al-Saleh told Bloomberg News on Wednesday in Kuwait City. Total expenditure will likely be flat compared with 2015, he said.
Kuwait’s response to the slump in its main source of revenue is in contrast to neighboring Saudi Arabia, which has already started delaying some projects and payments to contractors as it faces its first budget deficit since 2009. The government of Saudi Arabia was working with advisers on a review of capital spending plans, people familiar with the matter said in August.
“We are an economy that depends on government expenditure so if you stop that you go into stagnation,” Al-Saleh said. “We have not yet, and we are are not planning, to cancel any of our projects or developments as we believe they are the best way to enhance our infrastructure and avoid any economic stagnation.”
Kuwait’s economy is expected to expand 2.5 percent in 2016 from 1.2 percent this year, according to International Monetary Fund estimates. Growth in Saudi Arabia will slow from 3.4 percent to 2.2 percent.
Spending in this year’s budget was 17 percent lower, while investment spending rose by 13 percent, Al-Saleh said. The government is also planning to sell local currency bonds and may also look to tap international debt markets in 2016 as it seeks to fill the financial gap left by falling oil receipts, he said.
Kuwait’s break-even oil price, below which the budget will be in deficit, is about $50 a barrel, according to the IMF.
This year’s deficit is estimated to reach 8.2 billion dinars ($27 billion) based on an oil price of $45 a barrel, lawmaker Faisal al-Shayee said on Thursday, according to the official Kuwait News Agency. The cumulative deficit over the next five years is projected at 25 billion dinars, calculated on oil averaging $65 a barrel, he said.
The shortfall should be funded through a mixture of tools including fiscal reserves and the issuance of sukuk, dinar and dollar bonds, the news agency quoted central bank governor Mohammed Al-Hashel as saying.
A fatwa will be issued to soon to clarify that there is no need for a new law for sukuk, which can be handled through the existing public debt law, Al-Saleh said, according to the news agency.
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