Global Research - Kuwait

Kuwait 2010/2011 Budget Deficit at KD7.4bn

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In a new development on the fiscal front, preliminary figures for 2010/2011 budget were announced
with expected KD7.4bn of deficit. The announcement followed lots of major developments on the
Kuwaiti economic arena for the last three weeks. It started with the approval of Kuwait Economic
Development Plan 2013/14 coupled with the approval of Capital Market Authority Law and finally
the latest movement by Central Bank of Kuwait (CBK) to cut its discount rate by 50 basis points.

Such movements are reflecting the quick response by the government to support economic activity
and to help it facing recessionary pressures. In addition it reflects a new approach regarding the
Kuwait 2010/2011 Budget

relation between the Government -as an executive authority- and the National Assembly -as a
legislative authority- to put Kuwait economic development and sustainability of growth as a major
priority. The latest developments show a clear conversion in the views of both authorities regarding
the urgency of supporting the whole economy. Similarly, on the monetary and fiscal policies fronts,
we can see a clear interdependence as both policies are currently adopting expansionary loose policies
to support quick economic recovery.

Kuwait Budgets
2007/08 2008/09 2008/09 2009/10 2009/10 2010/11
KD mn Actual Budget Actual Budget Act Dec 09 Budget
Total Revenue 19,022.6 12,678.7 21,005.8 8,074.5 12,902.9 9,719.3
Oil Revenues 17,719.5 11,652.6 19,710.7 6,924.5 12,178.6 8,616.6
Other Receipts 1,303.1 1,026.1 1,295.1 1,150.0 724.3 1,102.7
Total Expenditure 9,698.0 18,997.2 18,262.2 12,116.0 5,685.4 16,162.0
Wages and Salaries 2,476.9 3,210.0 3,038.9 3,476.0 1,566.5 3,580.0
Requirements of Goods and
Services 1,768.0 3,077.0 3,001.9 2,355.0 839.4 2,938.0
Means of Transport & Equipment 89.8 179.0 122.1 344.0 138.2 225.0
Construction & Land Acquisition 1,206.3 1,664.5 1,357.8 1,265.0 658.9 2,100.0
Misc. Expenditure & Transfer
Payments 4,157.0 10,866.7 10,741.4 4,676.0 2,482.4 7,319.0
Surplus/ (Deficit) 9,324.6 -6,318.5 2,743.6 -4,041.5 7,217.5 -6,442.7
RFFG (10% of revenues) 1,902.3 1,267.9 2,100.6 807.4 1,290.3 971.9
Final Surplus after RFFG 7,422.3 -7,586.3 643.0 -4,849.0 5,927.2 -7,414.6
Source: Ministry of Finance & “Global” Research

Preliminary figures for the announced budget indicated that total expenditures are expected at
KD16.16bn, 33.4% of growth over 2009/10 budgeted expenditures of KD12.12bn. Revenues on the
other hand are expected to reach KD9.72bn up from KD8.07bn for previous budget. Oil revenues
will continue to account for the largest share of 88.7%.

Major features for the newly announced 2010/11 budget are:

_____________________
Faisal Hasan, CFA
Head of Research
fhasan@global.com.kw
Phone No:(965) 2295 1270
Walid Samir Mohamed
Senior Financial Analyst
wsamir@global.com.kw
Phone No:(965) 2295 1277
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• The new budget will be focusing on capital expenditures to account for mega projects
announced within the Kuwait Economic Development Plan 2013/14 which stipulates
spending around KD30bn on major projects.
• The government has approved the allocation of KD4.78bn for development spending within
the first year (2010/11) as a part of the 5 years development plan to stimulate growth. Such
expenditures will account for 29.6% of total expenditures.
• Capital expenditures will account for KD2.33bn or 14.4% of total expenditures. This is to be
compared with a share of 13.3% of capital expenditures in previous budget.
• Oil revenues are based on a budgeted Kuwait Export Crude (KEC) price of US$43/b as
opposed to US$35/b assumed in previous budget, (22.9% increase). However, we still
foresee that such price is too conservative as different expectations are showing oil prices
during 2010 to be in the range of US$70-80/b. Oil production on the other hand is
 Global Research - Kuwait

assumed at 2.2mn b/d which is still below the current year average production level of
2.26mn b/d.
• Expenditures for education are estimated at KD1.92bn, followed by KD1.13bn for
healthcare and KD3.39bn for water and electricity services.
• Finally, payments to offset the actuary deficit for social security will be KD1.09bn annually,
to be paid over the period 2010/2011 up to 2014/2015.

We have tried to depict the actual outcome for 2010/11 budget using three different scenarios. All
our scenarios are based on conservative, however, realistic oil prices. This is due to the fact that
historically budgeted figures are usually based on oil prices that are far from real prices. This leads to
expected budgeted deficits while actual outcomes are usually huge surpluses.

Scenarios for 2010/2011 Budget outcome

Kuwait 2010/2011 Budget

FY 2010/11 KD mn Budgeted figures Worst Case Most Likely Case Best Case
KEC Price (US$/b) 43.0 63.7 67.0 70.4
Production (mn b/d) 2.20 2.25 2.26 2.27
Total Revenue 9,719.3 14,993.8 15,901.6 16,816.4
Oil &Gas 8,616.6 13,891.1 14,743.8 15,603.4
Other receipts 1,102.7 1,102.7 1,157.8 1,213.0
Total Expenditure 16,162.0 14,869.0 14,707.4 14,545.8
Surplus/(Deficit) -6,442.7 124.8 1,194.2 2,270.6
RFFG 10% of revenue 971.9 1,499.4 1,590.2 1,681.6
Revenue after RFFG 8747.4 13494.5 14311.4 15134.7
Surplus After RFFG -7,414.6 -1,374.6 -396.0 588.9
Source: Ministry of Finance & “Global” Research

Our conservative scenarios expect oil price to be in the range of US$63.7/b in the worst case
scenario up to US$70.4/b in the best case scenario. This is to reflect the fact that oil prices are
expected to be higher during the course of 2010 due to better economic conditions worldwide. This
will help to increase demand on oil and thus sustain its prices at better levels than 2009. Similarly, we
expect oil production to be in the range of 2.25mn b/d to 2.27mn b/d. On the expenditures side, we
estimate actual expenditures to continue the historical trend to underperform the budgeted figures in
the range of 8% to 10%. Thus total expenditures will be in the range of KD14.55bn up to
KD14.87bn. As a result, the overall budget outcome will range from a surplus of KD124.8mn in
worst case scenario to KD2.27bn of surplus in best case scenario –before transfers for Reserve Fund
for Future Generations (RFFG).

Scenarios for 2009/2010 Budget outcome

FY 2009/10 KD mn Worst Case Most Likely Case Best Case
KEC Price (US$/b) 66.9 74.4 78.1
Production (mn b/d) 2.29 2.26 2.29
Total Revenue 17,005.8 17,450.0 17,780.7
Oil &Gas 15,855.8 16,242.5 16,515.7
Other receipts 1,150.0 1,207.5 1,265.0
Total Expenditure 11,146.7 11,025.6 10,904.4
Surplus/(Deficit) 5,859.1 6,424.4 6,876.3
RFFG 10% of revenue 1,700.6 1,745.0 1,778.1
Revenue after RFFG 15305.2 15705.0 16002.6
Surplus After RFFG 4,158.5 4,679.4 5,098.2
Source: “Global” Research

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 Global Research - Kuwait

On the current budget front, the latest available data from Ministry of Finance, revealed actual
revenues at KD12.9bn out of which KD12.2bn are actual oil revenues. Actual Expenditures stood at
KD5.7bn versus KD12.12bn of budgeted expenditures.

As for the whole fiscal year outcome, our different scenarios reveals actual surplus within the range
of KD4.16bn to KD5.1bn in the worst case to best case scenarios. This is to be compared with
budgeted deficit of KD4.85bn. Our estimates are based on nine month actual figures up to the end
of December 2009. We estimate oil prices for the remaining period of the fiscal year 2009/10 to be
in the range of US$66.9/b in the worst case scenario to US$78.1/b in the best case scenario. As a
result total revenues will be in the range of KD17bn up to KD17.8bn respectively. Expenditures on
the other side are estimated to be in the range of KD10.9bn up to KD11.1bn.
Kuwait 2010/2011 Budget

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Khaled Abd Elrahman Khaled Faisal Hasan, CFA Rasha Al-Huneidi
Kuwait 2010/2011 Budget

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