Kuwait 6-mth budget surplus down 15 pct as spending jumps

Despite Kuwait's oil wealth, the IMF recommends the country invest in infrastructure projects and control public wage growth

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Kuwait’s budget surplus narrowed in the first six months of its fiscal year as spending soared over 50 percent, partly thanks to increased outlays on public sector wages, while oil revenues fell, figures from the Finance Ministry showed.

The budget surplus for April to September was 10.72 billion Kuwaiti dinars ($37.9 billion), a Reuters calculation based on official data showed. That was down 15 percent from 12.65 billion dinars during the same period a year earlier.

Although Kuwait’s fiscal position is still strong because of its oil wealth, the International Monetary Fund has told the government that it will need to invest in infrastructure projects and control public wage growth to strengthen the economy and maintain a healthy balance sheet.

Kuwait’s prime minister echoed the IMF in October when he described the country’s expensive welfare system as unsustainable and said the government needed to cut spending and consumption of natural resources.

Six-month state expenditure reached 5.10 billion dinars, up 52 percent from 3.36 billion dinars a year earlier, the figures showed. Revenues fell to 15.82 billion dinars from 16.01 billion dinars because of a decrease in the oil price.

National Bank of Kuwait, the country’s biggest commercial bank, said in a report that the jump in spending was mostly due to current expenditure such as wages, rather than to investment.

Part of the increase may be due to the timing of some payments rather than to any increase in allocations over the full fiscal year, so spending growth is expected to moderate considerably by the end of 2013/2014, NBK said.

It added that much of the first-half spending surge apparently involved governmental transfers that would not affect the real level of demand in the economy, so the figures did not necessarily mean a huge boost to economic growth.

Kuwait pledged $4 billion in aid to Egypt after the overthrow of Islamist Egyptian President Mohammad Mursi in July, and quickly began disbursing that aid.

Nevertheless, the spending and revenue numbers are in line with the IMF’s warning that if Kuwait does not curb spending growth, government expenditure could exceed oil revenues by 2017/18, raising the risk of budget deficits.

Although senior government officials are discussing that risk, it is not clear whether they have the political freedom to address it.

Kuwait’s fractious political system has made it difficult for the government to push through economic reforms that are unpopular with voters. Any government attempt to cut subsidies for citizens or curb public wage growth could cause a backlash in parliament from lawmakers who support raising benefits, and possibly set off public sector strikes.