With a deficit of KD 7.7 billion and expenses totaling KD 22.5 billion in our new budget from April 1, our budget is not comforting for our future generation, despite firm assurances from the government three years ago that it will not increase its expenditures from KD 17 billion. The government now has unfortunately returned to its old habit of spending excessively beyond KD 17 billion.
Now we are back at square one with the expenses becoming uncontrolled and without any way to cover the deficit. We will have to rely on our reserve and the additional income from our overseas investments that belongs to the future generations of Kuwait.
The government has done nothing to curb expenses. It has been continuing its old habit of letting expenses go out of control. Our new budget is based on an oil production of 2.8 million barrels per day at a cost of $55 per barrel.
Our new break price is $80 for balancing the budget for next year until March 2020. International oil prices will never reach this level in the coming years due to which borrowing from own resources is our only option. Two elements that are taking over our expenses are salaries at KD 12 billion and subsidies at KD 4 billion.
This is a total of KD 16 billion or 71 percent of Kuwait’s annual budget, registering an increase of almost KD 1 billion per annum. Thus, there seems to be no end to such expenses.
Due to this reason, it has given up on any future economic reforms. For certain, we will incur some additional deficit, as the budget is based on 2.8 million barrels of crude oil production. However, we have to deduct about 600,000 barrels per day for domestic consumption, which should be taken out as revenue.
Another factor is our assumption that Kuwait will continue producing 2.8 million barrels on sustainable basis for 365 days. We also must bear in mind that our budget does not include the budgets for major mega projects like the Silk Road, and development of islands of Kuwait, both of which require huge internal funds.
This could double the deficit in the years to come. Of course, the deficit will be covered by our Central Bank reserve and the returns of our overseas investments, which today are worth a total of about $650 billion with 5 present annual return.
This should be put back into investments, but it these days serve in balancing our budget. Such actions are against our established rules but aim at serving the budget and covering our deficit. Certainly, our new budget is an indication that we are dedicating funds for the wrong purposes. Also, there is not a single indication of economic reforms for a long time to come!!
By Kamel Al-Harami Independent Oil Analyst