The government has approved the budget for the next fiscal year starting from April 1, with total revenues estimated at KD 18 billion and total expenses at KD 24.5 billion, resulting in a deficit of KD 6 billion. The budget is based on an estimated price of $68 per barrel FOB Kuwait, which is conservative in comparison to our expenses. To break even and fully recover all of our expenditures, the price would need to be $90 per barrel. A closer look reveals that salaries and subsidies account for roughly 80 percent of the budget, leaving little room for capital investments. The government has allocated only KD 2.2 billion for capital expenditure, which is two percent lower than last year’s budget.

Meanwhile, oil revenues are expected to reach KD 15 billion, or approximately $45 billion, based on an oil price of $78 per barrel. However, Kuwait’s crude oil is currently being sold in the spot market at around $75 per barrel, which still falls short by about $15 per barrel from the breakeven point of $90. Oil market analysts predict that prices will likely remain between $70 and $75 per barrel. We are facing another year of budget deficit, and we have to find solutions, likely involving tough decisions. If there are any remaining financial reserves, we may need to dip into them due to the ninth consecutive year of deficits.

Kamel Al-Harami

Alternatively, the government may consider international borrowing, which it has yet to explore. Another option could be to utilize profits from its overseas global investments, which could be the quickest and most cost-effective approach. Another possible route is to privatize some government-owned companies, either in the oil sector or other commercial sectors where the government holds 100% ownership. However, this approach would take time, possibly years, before it comes to fruition. Once implemented, it could result in the privatization of many government-owned companies, which seems to be the case, as many of these companies, especially in the oil sector, were originally established by private Kuwaiti entities in the early 1960s.

One observation of the upcoming budget is the nine-percent increase in non-oil revenue, which is projected to reach KD 3 billion above the budget of the fiscal year until the end of March. It is no surprise that the government is embarking on 90 new projects in various sectors, including roads, education, health, and infrastructure. For example, two new football stadiums are planned in the new cities in the northern parts of Kuwait, at a total cost of KD 1.7 billion. While the budget is ambitious, we need projects that provide long-term benefits, help maintain our competitive edge, and create job opportunities for the estimated 25,000 new graduates entering the workforce each year. With oil prices expected to remain around $70 per barrel for the remainder of the year, it may be time for the government to reconsider its spending priorities.

Reducing expenses and focusing on privatization could be important steps in freeing the government from non-core activities. The private sector should be allowed to take over these areas, as it is generally more efficient and capable of managing investments, and offering a professional approach to managing their resources.

By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]