After a postponement due to parliamentary elections held last September, the National Assembly (parliament) in Kuwait approved the state budget for the fiscal year 2022-2023 that began on April 1, predicting the lowest deficit in nine years for the OPEC member due to high oil prices.
According to the approved budget, expenditures will amount to 23.5 billion dinars ($76 billion), while revenues are expected to reach 23.4 billion dinars, and the deficit 124 million dinars.
A barrel of oil in the budget is estimated at $80 and today it is in the range of $95.
A recent report by the International Monetary Fund revealed the price of oil, which represents the fiscal breakeven point for the budgets of Arab countries, and the breakeven point has not changed much for Kuwait’s budget. The IMF expects it to reach $57.8 a barrel in 2023 and $56.7 a barrel in 2022.
The IMF also predicted that Kuwait would achieve 8.7 percent economic growth in 2022 and that it would fall significantly to 2.6 percent in 2023.
Wages and subsidies make up about 70 percent of the budget.
Statistics revealed that total oil revenues achieved by Kuwait in the period from April to October amounted to about 19.4 billion dinars, while the average volume of state spending during the same period amounted to about 13.65 billion dinars.
This means that Kuwait achieved a budget surplus during the last period of the year estimated at 5.75 billion dinars, based on the total volume of state expenditure estimated at 23.1 billion dinars for the whole year, and the average volume of oil production of 2.8 million barrels per day.
Using a simple calculation, the rise in the price of a barrel of Kuwaiti oil above the price specified in the budget achieved budget savings estimated at 333 million dinars. It is the size of the savings that are the same as those estimated in the draft general budget for the current fiscal year.
At $80 a barrel, Kuwait’s $29.6 rise in the price of Kuwaiti oil secures a total budget surplus of 9.85 billion dinars.
A report by the National Bank of Kuwait on Monday revealed that the rise in oil prices has contributed to the strengthening of Kuwait’s financial situation, and this year’s government budget is expected to record its first fiscal surplus since 2014 – this is in addition to the significant reduction in liquidity restrictions seen during the previous period.
The surplus can increase or decrease. Any change in oil prices, up or down during the remaining five months of the fiscal year, will fundamentally affect budget performance, as an increase in prices will naturally increase the size of the surplus, and its decline will lead to its contraction.
Any change in OPEC policies in terms of global production volumes and Kuwait’s share in those will have the same effect, either increasing or reducing revenues.
Conversely, if the Kuwaiti Government and the National Assembly approve any additional expenditures, the difference between revenues and expenditures will increase, and the surplus will therefore be reduced by the value of the new additional expenditures themselves.
An Amiri decree issued on October 17 to reconstitute the government included Badr al-Mulla as oil minister, Sheikh Salem Abdullah al-Jaber al-Sabah as foreign minister, and Sheikh Abdullah Ali Abdullah al-Salem al-Sabah as defense minister.
Finance Minister Abdul Wahab al-Rasheed told parliament that the state would finance the budget gap through the General Reserve Fund or the Treasury, which is managed by the General Authority for Investment.
Kuwait will not transfer 10 percent of total revenues to the Future Generations Fund, or sovereign wealth fund, under a 2020 law that prohibits such transfers in deficit years.
Kuwait still needs to pass a public debt law that allows the government to borrow about 20 billion dinars ($65.3 billion) from global markets over 30 years.
