KUWAIT CITY, March 4: Latest public finance data show that government spending levels continued to climb in December, though the rate of spending remains well below its historic trend. While current expenditures have provided the main engine of spending growth so far this year, investment spending has stayed relatively subdued. Soaring revenues have continued to outpace growth in spending — despite the recent acceleration — generating massive budget surpluses.
After remaining flat at around KD 14.7 billion in the previous month, the budget surplus for the first 9 months of the fiscal year jumped to KD 16.1 billion in December before allocations to the Reserve Fund for Future Generations. The surplus, equivalent to 33% of annual 2012 GDP, was lifted by a combination of soaring revenues and comparatively softer spending growth. With reported spending likely to pick-up pace in the remaining three months of the year, the final budget surplus could close at up to KD 14.0 billion. (Chart 1.)

Rapidly
Total revenues climbed to KD 24.3 billion in the first 9 months of FY 2012/13, about KD 2.8 billion higher than a year ago. Oil revenues continued to rise rapidly by some 13% y/y despite declining oil prices — Kuwait Export Crude prices were down 1% y/y over the same period. Additionally, non-oil revenues have also risen strongly by a large 26% y/y on the back of higher miscellaneous revenues and fees.
Government spending accelerated to KD 8.2 billion in December, only KD 0.1 billion below levels seen in the comparable period of the previous year. Total spending was up by some KD 1.2 billion from November, compared to a faster pick-up of around KD 2.7 billion a month earlier. With three-quarters of the current fiscal year already behind us, just 38% of the budget has been spent — lower than usual for this stage of the year. Nevertheless, with spending typically accelerating in the final months of the year, there is still scope for expenditures to pick-up going forward.
Current spending, which was up year-on-year in December for the first time in FY 2012/13, reached KD 7.4 billion. Current expenditures continue to be driven by the ‘wages & salaries’ component, which was up by some 17% y/y. The remaining months are likely to see an acceleration in the larger ‘miscellaneous expenditures & transfers’ segment, supported by an expected rise in inter-governmental transfers — including large transfers to cover the actuarial deficit in the social security fund.
 

Capital spending, on the other hand, reached KD 0.7 billion in December — almost KD 0.2 billion lower than a year ago. Even more disappointing, the rate of capital spending reached just 27% of the full-year budget, compared to a 5-year historic average of 36% for a similar 9-month period. (Chart 3.) The final quarter of the fiscal year could see an improvement in investment expenditure levels as the government accelerates spending on infrastructure. However, for the year as a whole, capital expenditure could register a small year-on-year decline. (Chart 4.)
Our estimate of demand-impacting spending* reached KD 5.9 billion in December, a respectable rise of 16% y/y, compared to 3% in the previous year. This spending excludes some transfers and other items that have minimal effect on economic activity. The strong rise indicates that fiscal policy is providing some much-needed support for the economy.
In summary, the data show that despite a decent pick-up in government spending, soaring revenues have continued to generate a huge run-up in the budget surplus. The surplus is likely to dip in the final quarter as spending accelerates. Nevertheless, the government’s fiscal position is likely to remain extremely strong.