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

Pipes lead from Kuwait Petroleum Co’s Mina Al-Ahmadi Refinery to the South Pier loading area in Kuwait City (file). 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.Reuters/Kuwait CityKuwait’s budget surplus narrowed in the first six months of its fiscal year as spending soared over 50%, 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 10.72bn Kuwaiti dinars ($37.9bn), a Reuters calculation based on official data showed. That was down 15% from 12.65bn 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 5.10bn dinars, up 52% from 3.36bn dinars a year earlier, the figures showed. Revenues fell to 15.82bn dinars from 16.01bn 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 2013-14, 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 $4bn in aid to Egypt after the overthrow of former Egyptian president Mohamed 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 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.