Oil prices to keep Kuwait fiscal surplus buoyant

The country’s budget will record a surplus of up to KD7.1 billion

Strong oil prices will allow Kuwait to maintain its fiscal surplus in the current fiscal year despite an expected surge in spending as part of the Gulf emirate’s massive investment plan, a key Kuwait bank said Tuesday.

Kuwait had forecast a conservative price for its crude of $43 in its 2010-2011 budget, which started on April 1, but average prices are expected to end the year much higher, National Bank of Kuwait (NBK) said in a study.

As a result, the country’s budget will record a surplus of up to KD7.1 billion (Dh88 billion) although the government has projected a large deficit, it said.

“Despite the government’s projection of a deficit of KD6.4 billion this year in its provisional budget plans, we suspect that all of the oil price scenarios could still yield budget surpluses – albeit of varying degrees,” it said.

It said the difference stems mainly from its projections for oil prices, which are much higher than the government’s “very conservative” $43 price.

“Based upon our scenarios, the government’s budget surplus for 2010/11 would end-up between KD0.1 billion and 7.2 billion,” the study said.

“This comes despite an anticipated increase in budgeted spending of some 33 per cent this year, partly linked to investments under the government’s 4-year development plan,” it said.

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 KD7 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 during 2005-2008.

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