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The full story of our budget for the next year starting from April is not quite right, because it is based on a crude oil price of $70 per barrel. With the current rate being $82, we will reach a breakeven level with no deficit at such a rate, unless the oil prices go down by $10 per barrel for the balance of the year, which seems very unlikely.
The budget is also based on a daily production rate of 2.67 million barrels, at a rate of $70 per barrel, which will cost us a deficit of $15 billion, with expenses running at KD 26 billion or $78 billion. Kuwait’s Ministry of Finance always shocks us with deficit figures for the sake of curbing overspending and reducing our government expenses.
However, the opposite is happening and we end every year with a breakeven budget, but always exceeding our expenses, and so on. At this rate of expenses and without any control in terms of the continued growth in spendings, oil prices should be between $120-$125 to balance our economy. Short of it, we would need to borrow or hit our sovereign wealth funds, which belong to the coming generations, certainly not the current ones.
The main element or 80 percent of our huge budget, which is the biggest so far in our history, is allocated for salaries and subsidies at 46 percent and 34 percent respectively, equivalent to KD 15 billion of the total budget for next year. On the other hand, expenses on capital projects went down by 15 percent, reaching KD 2 billion. It is noticeable that our government has not yet started looking for means and ways to move away from oil and find another source of income, like our neighboring countries.
This is necessary for us to either deal with any future reductions in oil prices, or any future increase in oil prices, considering our open aptitude for more spending and increasing our budget on an annual basis as the case of our decent years.
The government must find means and ways to reduce the deficit of $ 15 billion simply by increasing the local gasoline prices and or introducing Value Added Tax (VAT) like our surrounding countries. For this, it needs good will and firm standing. Until such a time, we will keep our fingers crossed for the oil prices to remain firm at today’s level; otherwise, we will end up e
By Kamel Al-Harami Independent Oil Analyst