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Kuwait has succeeded in posting an extraordinary growth in actual revenue in fiscal 2007-'08, thereby throwing serious doubts on the practice of underestimating treasury income.
Actual revenue jumped by a hefty 138 per cent to a record $72 billion.
Similar to Qatar, Kuwait's fiscal year commences in April. However, Kuwait stands out amongst Gulf Cooperation Council (GCC) countries by setting aside 10 per cent of annual treasury income for the Reserve Fund for Future Generations.
The plan aims at ensuring sustainable means for quality of life for upcoming Kuwaitis.
Undoubtedly, the credit for this sharp rise is reserved for the oil sector. The sector accounted for 92 per cent of total treasury income. The actual oil revenue amounted to nearly $67 billion, thanks to firm oil prices.
Still, the oil income compares favourably with total projected revenue of $31.1 billion for the fiscal year under review. By comparison, other GCC member states of Saudi Arabia, the UAE, Qatar, Oman and Bahrain are less dependent on oil. The petroleum industry contributes about 75 per cent of Bahrain's treasury income.
Extraordinary reliance on the petroleum industry places Kuwait's economy at the mercy of developments in international oil markets. True, Kuwait is a member of Opec, yet it is not a leading oil producer within the group. Kuwait produces some 2.5 million barrels of crude oil per day. By contrast, Saudi Arabia produces some nine million barrels per day.
Not counting fiscal year 2007-'08, Kuwait posted a sum of $72 billion in budget surpluses over the past eight fiscal years. Budget surpluses amounted to $18.5 billion and $24 billion in 2006-'07 and 2005-'06 respectively. The exact budget surplus for 2007-'08 will be established once the authorities adjust for all expenditures.
The authorities were uniquely wrong with regards to oil price by assuming an average of $36 per barrel. However, Kuwaiti oil topped $75 for 2007-'08. Unquestionably, what occurred in the last fiscal year is more than just developing conservative budget estimates. The real oil price proved to be more than double the assumed average rate.
It is believed that the authorities intentionally assumed low prices in order to fend off requests by Members of Parliament for steady increase in pay for Kuwaitis working in the public sector. About 92 per cent of Kuwaiti nationals work in governmental departments and state-owned establishments, again the highest within the GCC.
The government could not make use of all allocated funds for spending. Preliminary statistics show expenditures declining to $28.2 billion, considerably lower than the projected spending of $42.5 billion. In fact, stronger oil prices made it possible for officials to augment actual spending.
It is suggested that the fear of adding to inflationary pressures stopped the authorities from spending the total allocated amount. Like elsewhere in the region, inflation has emerged a major problem. Stronger spending, and hence demand, is partly responsible for growing inflationary pressures. Accordingly, lower spending can help contain rise in prices.
Yet, it is argued that underspending is partly due to capacity constraints. It says that some contractors cannot simply assume further development projects due to capacity restrictions. Many firms are just overwhelmed by the sheer number of projects being developed in the country.
The final results of 2007-'08 were a replica of the traditional formula, namely growing actual revenue together with declining expenditures and hence reversing budget deficit into surplus. The same is true elsewhere in the GCC.
- The writer is a Member of Parliament in Bahrain.
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