Kuwait budget to remain in surplus: report

Kuwait will still bask in a budget surplus in the current fiscal year even if average oil prices dipped below $70 although it has projected a large deficit based on a conservative crude price, according to a key Kuwaiti bank.

The Gulf OPEC emirate, one of the largest oil producers in the world, has forecast a fiscal deficit of around KD6.4 billion (Dh80 billion) in its 2010-2011 fiscal year which began on April one as it assumed a very conservative oil price of around $43 a barrel, National Bank of Kuwait (NBK) said.

But oil prices have average above $60 so far this year and are projected to top $70 through 2010.

They are expected to swell further in 2011 as the global economy gains steam in its slow recovery process.

In a study on oil prices and their impact on Kuwait’s budget, NBK said stronger world economic growth could see global crude demand rise by an amount more in line with the IEA’s prediction of 1.8 mbpd this year.

To avoid prices escalating too far, OPEC might relax members’ quotas, adding around 0.4 mbpd to its output by early 2011, the report said.

“Under these conditions, the price of Kuwaiti crude could reach mid-$80 levels by the first quarter of 2011...these scenarios leave the price of Kuwaiti crude in the $67.3 to 79.9 range for this fiscal year. This is well above the $43 projection used by the government in its current budget,” NBK said.

“Under the government’s projection, the fiscal deficit would reach KD6.4 billion this year. In fact, if, as we assume, government spending comes in at 5-10 per cent below budget levels, our oil price scenarios could generate a fiscal surplus of between KD0.9 billion and 5.7 billion this year, before allocations to the Reserve Fund for Future Generations…this comes despite an increase in budgeted spending of some 33 per cent this year, and would see the budget record its 12th consecutive annual surplus.”

NBK’s projections about Kuwait’s fiscal surplus are lower than earlier forecasts, which put the surplus at around KD7.1 billion (Dh88 billion).

NBK said the 2009-2010 had also posted a larger than expected surplus because of the improvement in oil prices. 

It estimated the surplus at around KD6.4 billion in its low prices scenario, at KD6.7 billion in its base case and nearly KD seven billion in its high case.

Kuwait, which controls the world’s fourth largest oil deposits after Saudi Arabia, Iran and Iraq, has basked in a massive fiscal surplus over the past few years during the region’s second oil boom that reversed several years of low prices and economic volatility.

The boom ended when crude prices collapsed by over $100 following in the 2008 September global financial distress.

In a previous study, NBK estimated Kuwait’s cumulative budget surplus at around $71.2 billion (Dh260 billion) during 2005-2008.

Unlike Kuwait, Saudi Arabia suffered from a fiscal deficit of around SR45 billion (Dh44 billion) in 2009 after enjoying its highest surplus of more than SR580 billion (Dh575 billion) in 2008 because of a surge in oil prices and output.

While Kuwait has relatively restrained expenditure, Saudi Arabia has persistently overshot budgeted spending, boosting actual outlays by nearly 15 per cent last year as part of counter-crisis fiscal expansion measures.

NBK presented three scenarios for oil prices and Kuwait’s budget surplus. Under the scenario of low oil price of 67.3, the budget will record a tiny surplus of around KD124 million (Dh1.5 billion). In the base $71.3 price case, it put the surplus at KD1.24 billion (Dh15.5 billion) while the surplus could soar to KD4.03 billion (Dh50.4 billion) in the high $79.7 price case after allocations to RFFG.

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