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Economic UpdateSeptember 3, 2013

Public finance

Kuwait: government spending

provided significant support for theeconomy in FY12/13

NBK Economic Research, T: (965) 2259 5500, F: (965) 2224 6973, econ@nbk.com, © 2013 NBK www.nbk.com 

  Final public finance figures for fiscal year 2012/13 (April to March) show

that government spending jumped by 14% last year, much more than

expected. The increase will have provided considerable support for the

broader economy, where the growth picture remains mixed. However, the

spending increase was driven almost entirely by current expenditures

rather than investment, whose performance again disappointed. We look

for capital spending to improve this year, although overall government

spending growth may be more muted.

  Total government spending reached KD 19.3 billion, much higher than we

had expected thanks to some unusually large adjustments between the 11-

month data and the end-year accounts – likely reflecting reporting issues.

Current spending, which had looked on track to reach KD 16.0 billion or

so, ended up at KD 17.5 billion, a rise of 15% y/y. The surprise came

mostly from a sharp rise in the large ‘miscellaneous & transfers’ spending

category, which incorporates items such as military salaries, transfers to

the social security fund and transfers abroad – all of which jumped in the

final accounts. This segment accounted for 52% of current spending.

  Also in current spending, civilian wages and salaries increased by a

sizeable 18% y/y to KD 4.8 billion. This follows an even more impressive

20% increase in the previous year. The rise reflects a combination of

employment gains – public sector hiring rose by some 10,000 in the year

to June 2013 – and pay increases, including a 25% increase in basic pay

for Kuwaiti nationals. In combination with high employment rates, these

trends have helped support continued strength in the consumer sector,

which has been the economy’s main bright spot for several years.

  Current spending was also boosted by a huge 32% increase in spending

on ‘goods & services’ to KD 3.6 billion. These are mostly comprised of

inter-governmental transfer payments to cover the hypothetical cost of

purchasing fuel from local refineries to supply power stations. The increase

was trailed in the budget targets for the year, and is likely related to rising

electricity output.

  Capital spending was unchanged for the year at KD 1.8 billion, partly a

reflection of continued sluggish implementation of the government’s

FY2010/11-13/14 development plan (not all of which appears on budget).

The spending execution rate actually improved to 69% last year from an

especially soft 64% a year earlier, thanks to a decline in the official budget

target for the year. Soft investment spending continues to be one of the

economy’s key weak spots. Over the past five years, for example,

government capital spending has grown by 7% per year on average,

compared to 16% for current spending; as a share of total government

spending, capital expenditures (capex) stand at 9%, which remains low by

regional standards.

Chart 1: Actual government spending 

(%y/y, excludes transfers to PIFSS)

Chart 2: Spending breakdown FY2012/13 

(% of total spending)

1  Includes transfers to PIFSS, military salaries, fuel

subsidies, transfers overseas and other items.

Chart 3: Actual vs targeted capital spending

(actual capex as % of budget)

Chart 4: Budget balance 

(% GDP)

Source: Ministry of Finance / NBK

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www.nbk.com 

  In terms of its impact on the overall macro economy, the above spending

figures suggest that fiscal policy was very supportive of economic growth

last year. Once we strip out certain large items (some of which we have

estimated) that have little or no impact on domestic demand –  such as

payments abroad and intergovernmental transfers – spending looks to have

risen by some 15% y/y. This compares to a small reduction the year

before.

  Unlike expenditures, budget revenues were in line with our expectations,

at KD 32.0 billion, up 6% y/y. The bulk of this was oil revenues, which

reached an all-time high of KD 30.0 billion. Although oil prices, at $106

per barrel, averaged a little lower than a year earlier, the impact on

revenues was more than offset by a 5% rise in oil production to 2.9 million

barrels per day. Kuwait and other OPEC countries increased output to

compensate for declining supplies elsewhere. Non-oil revenues also posted

a solid-looking 22% y/y increase to a record KD 2.0 billion, driven by

higher telecom charges and rising compensation payments from the UNCC.

  As a result of the unexpected jump in overall budget spending, the

FY12/13 fiscal balance turned out a bit lower than the KD 14 billion

surplus we had expected, at a still strong KD 12.7 billion.  This is

equivalent to 25% of 2012 GDP. The surplus is the latest in a long line of

super-strong budgetary outcomes, dating back to the turn of the century.

Over the past 14 years, the cumulative surplus has totaled some KD 71

billion, which has contributed to Kuwait’s now vast sovereign wealth fund.

  The year ahead (FY13/14) is likely to see a further large budget surplus,

though perhaps slightly lower than last year’s. With oil prices and

production remaining high, revenues are likely to come in close to last

year’s levels. The government has outlined a 1% y/y drop in the budgetspending target for FY13/14. But given last year’s under-spend, this still

leaves room for a decent-sized increase in actual spending of 5% or so

while staying well within the budget target. This should provide continued

support for the broader economy. Just as importantly, we look for capital

spending to register a solid gain given recent signs that large government-

led projects are at last beginning to get underway.

Table 1: Government revenues and expenditures 

Actual Forecasts FY13/14

FY11/12 FY12/13 Gov budget NBK

KD bn KD bn %y/y KD bn KD bn %y/y2 

Revenues 30.2 32.0 5.9 18.1 29.3 -8.4

Oil 28.6 30.0 4.9 16.9 27.2 -9.4

Non-oil 1.7 2.0 22.3 1.2 2.2 7.0

Expenditures 17.0 19.3 13.5 21.0 20.1 4.0

Wages & salaries 4.1 4.8 17.7 5.2 5.0 3.2

Goods & services 2.8 3.6 31.9 3.9 3.7 2.1

Vehicles & equipment 0.1 0.2 8.2 0.4 0.3 54.5

Projects, maint. & land 1.7 1.7 0.0 2.2 2.0 21.1

Miscellaneous & transfers 8.3 9.0 8.1 9.4 9.1 1.1

Balance 13.2 12.7 - -2.9 9.3 -

After RFFG 10.2 4.7 - -7.4 1.9 -

Note:

Current expenditure1  15.2 17.5 15.0 18.4 17.8 1.9

Capital expenditure 1.8 1.8 0.7 2.6 2.3 24.0

Oil production (mbpd) 2.8 2.9 4.6 2.7 2.8 -3.0

Oil prices ($ pb, KEC) 109.7 106.4 -3.0 70.0 100.0 -6.0

Source: Ministry of Finance / NBK 1 Includes the wages & salaries, goods & services, and miscellaneous & transfers categories2 Increase versus actual figures for FY12/13

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Head Office International Network  NBK Capital

Kuwait

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Tel: +965 2242 2011

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National Bank of Kuwait SAK

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Lebanon

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P.O. Box 11-5727, Riad El-Solh

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Credit Bank of Iraq

Street 9, Building 178

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P.O. Box 3420, Baghdad, Iraq

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+964 1 7188406/7171673

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Egypt

 Al Watany Bank of Egypt

Plot 155, City Center, First Sector

5th Settlement, New Cairo

Egypt

Tel: +20 2 26149300

United States of America

National Bank of Kuwait SAK

New York Branch

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New York, NY 10171

USA

Tel: +1 212 303 9800

Fax: +1 212 319 8269

United Kingdom

National Bank of Kuwait

(International) Plc

Head Office

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London W1U 3QJ

UK

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National Bank of Kuwait

(International) Plc

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France

National Bank of Kuwait

(International) Plc

Paris Branch

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France

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Singapore

National Bank of Kuwait SAK

Singapore Branch

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Republic Plaza

Singapore 048619

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China

National Bank of Kuwait SAK

Shanghai Representative Office

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Shanghai 200120

China

Tel: +86 21 6888 1092

Fax: +86 21 5047 1011 

Kuwait

Watani Investment Company KSC (c)

38th Floor, Arraya II Building

Shuhada’a street, Sharq 

PO Box 4950, Safat, 13050

Kuwait

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Fax: +965 2224 6904

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Turkey

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 Associates

Qatar

International Bank of Qatar (QSC)

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P.O. Box 2001

Doha, Qatar

Tel: +974 4447 8000

Fax: +974 4447 3710

Turkey

Turkish Bank

Valikonagl CAD. 7

Nisantasi 34371

Istanbul, Turkey

Tel: +90 212 373 6373

Fax: +90 212 225 0353 

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