General Budget Draft FY 2020/2021

The Minister of Finance provided a presentation on the features of draft general budget for the coming fiscal year 2020/2021. The most important assumption was the targeted production of oil will drop from 2.8 million barrels per day to 2.7 million barrels per day, or about 3.6%, coinciding with the increase in its production costs by about 8.8%, or from about KD 3.42 billion, to about KD 3.72 billion. This means that when assuming a price per barrel for the Kuwaiti oil at around US$ 55 a barrel, costs of its production will reach about 20% of its export price; it is likely that it will continue to rise and pressures to reduce the price and production will continue.

Those pressures on the revenues side are offset by pressures and lack of flexibility of public expenditures estimated at KD 22.5 billion without any change despite all promises to reduce them, 71% of them include salaries, wages, and subsidies. What remains is about 29% which represents the minimum level required under Kuwait’s economic conditions to go to the real capital formation, specifically in order to create new job opportunities for about 450 thousand citizens coming to the labor market until 2035, and distributed among other requirements within the current spending and construction projects most of which are irrelevant to any developmental goals. Indeed, what is left is insufficient to upgrade the necessary services such as education, health, and housing; neither is it sufficient to maintain the large and bad-quality projects that have been built such as non-functioning hospitals for lack of labor and material equipment. Nor is it sufficient to the infrastructure such as roads and bridges whose creation was not linked creating jobs or any of the declared goals of development.

In the overall estimates, public revenues decreased by 6.5%, while public expenditures remained the same as mentioned. Accordingly, estimates of financial deficit before deduction of 10% for future generations increased by 15.3% or to KD 7.7 billion from KD 6.7 billion the level of the current budget estimates. The alternative for financial sustainability project requires to diversify and increase revenue sources, the forthcoming budget project estimates a decrease in non-oil revenues by about 3.8%, coinciding with the large and unsustainable size of public expenditures whose effectiveness and flexibility are reduced.

Figures in our opinion are not important. The hypothetical deficit may increase or decrease according to the average actual oil price and according to more or less spending than the estimated when the final account is issued. The important thing is the continuation of the same risky and unsustainable approach. Contrary to all those who announce the intentions of economic and financial reform and reform of the employment balance, both economic and fiscal policy work to further undermine the sustainability of all of the above. Production imbalance is rooted in the dominance of the oil sector and the fiscal imbalance is rooted in the dominance of oil revenues both of which are incapable of sustainability which threatens the employment balance with Kuwait entering an unbearable stage of unveiled unemployment. Most dangerously still is the call for tolerance with the government in order to issue the borrowing law in order to add to all of the aforementioned problems, the problem of the loan trap. It seems that the new government is following the path of previous governments, promises of reform but with no actions, and it is not assumed that a new government will start its work with a negative performance balance. Responsibility is in par with authority which controls the interests of the country and it is the one who assumes the liability for that loss.