For Kuwait's new fiscal year 2014-15, which started in April, there is cautious optimism concerning revenues while retaining caution on expenditures.
Within the six-nation Gulf Cooperation Council (GCC), Kuwait and Qatar have their fiscal years from April to March end.
The state budget is vital for the well being of the Kuwaiti economy by virtue of constituting some 40 per of gross domestic product (GDP). In fact, its GDP of some $184 billion makes it the fourth largest within the GCC after Saudi Arabia, the UAE and Qatar. Consequently, Kuwait suffers from the phenomenon of a sizable governmental involvement in the economy.
Anyway, the projected expenditures for fiscal year 2014-15 amount to $77 billion, showing a reasonable growth of 3 per cent. However, if performance of the past few years is a guide, actual spending would end up being less than the projected figure.
Partially, this trend reflects the contentious relations between the executive and legislative chambers regarding capital expenditures. Hence the delay in executing planned schemes.
The two sides have a history of disagreements over certain projects. In 2013, Kuwait paid nearly $2.2 billion to Dow Chemical Co. of the US in the form of compensation for cancelling a joint venture.
Not surprisingly, current outlays soak up a hefty 90 per cent of total spending. Therefore, there is a mere 10 per cent set aside for capital expenditures. This is not surprising, as some 92 per cent of Kuwaiti nationals work for state entities and enterprises.
Clearly, the public sector is doing more than its fair share in providing employment opportunities for locals. This is s not a healthy environment and a challenge that needs to be addressed.
Turning to treasury income, total revenues are projected at $71.4 billion, up by nearly 11 per cent versus budgeted figures for fiscal year 2013-14 and reflect the assumption of a higher average oil level.
In reality, the assumed oil prices have risen steadily over the past few years, namely from $60 per barrel in fiscal year 2012-13 to $70 per barrel in 2013-14, and still $75 per barrel in the latest fiscal year. Certainly, the figure remains below prevailing market rates, in turn hovering around $100 per barrel, and thus an opportunity for recording stronger revenues.
Worryingly, the oil factor comprises a hefty 93 per cent of the treasury income. In addition, the petroleum sector accounts for 85 per cent of exports and 40 per cent of the GDP.
As such, these confirm that the well being of Kuwait's economy rests upon developments in the oil market, something not desirable in the light of on-going upheavals in oil prices.
Accordingly, the projected deficit stands at $5.6 billion, or 3 per cent of the GDP. Interestingly enough, this is in line a critical requirement of the Gulf Monetary Union (GMU) project.
Accepted since the start of 2010 by all GCC states except for the UAE and Oman, the GMU restricts budget deficits to 3 per cent of GDP.
Yet, it is more likely that the real revenues would be higher than the budgeted figures if only judging by the assumed oil price. In turn, this should more than overturn the projected budgetary shortfall.
To be sure, Kuwait has developed a habit of recording substantial budgetary surpluses due to stronger actual revenues combined with lower than projected expenditures. By one account, the combined value of successive budgets of the past 10 years amounts to a staggering $300 billion.
Certainly, reducing the extraordinary dependence on the petroleum sector remains a challenge for the decision-makers.