Kuwait posts record $36bn deficit on oil price drop, virus

Kuwait’s budget deficit swelled to a record in the year through March as oil prices plunged and the coronavirus pandemic negatively impacted the economy.

The gap climbed 175 per cent to KD10.8bn ($36bn) in the last fiscal year, compared with a year earlier, the Finance Ministry said in a statement on Saturday.

The OPEC member has been battling to reduce its deficit due to its dependence on oil revenues, and high spending on civil servant wages and subsidies. Ongoing political squabbles have prevented the government from passing laws to allow it to borrow and withdraw as much as KD5bn a year from the Future Generations Fund – a $700bn savings pot designed for life after oil. The country hasn’t been to the market since a debut Eurobond in 2017.

Lawmakers have said the government should better manage its finances and fight corruption before resorting to debt.

Last month Kuwait was downgraded by S&P Global Ratings for a second time in less than two years. The rating agency said the downgrade reflects “the persistent lack of a comprehensive funding strategy despite the central government’s ongoing sizable deficits.”

Kuwait’s government projects a cumulative budget deficit of KD55.4bn in the five fiscal years ending March 31, 2025.

Other Highlights

• Income for the year through March fell 39 per cent to KD10.5bn, while spending rose 0.7 per cent to KD21.3bn, the finance ministry said.
• Salaries and subsidies in the 2020-21 fiscal year accounted for 73 per cent of spending, while 9 per cent of expenses was on capital expenditure and infrastructure. The average price of Kuwaiti crude in the period was $42.4 a barrel.
• Non-oil revenue fell 6.5 per cent to KD1.7bn in the period.
• A 10 per cent transfer of total revenues to the FGF didn’t take place in line with a law passed by parliament in 2020 to halt such transfers in years of deficit.

The current fiscal year’s deficit starting April 1 is projected at KD12.1bn, with spending and revenue forecast at KD23bn and KD10.9bn, respectively. Wages and subsidies account for 71.6 per cent of the budget, while capital expenditure stands at 15 per cent of total spending.