Kuwait plans $22.6bn deficit for 2010-11

10 February 2010

Non-oil sector accounts for 11 per cent of projected state income

The Kuwaiti government has asked the country’s National Assembly (parliament) to pass a draft budget for the year to 31 March 2011, which projects a deficit of about KD6.5bn ($22.6bn), although analysts expect a ninth consecutive surplus.

In a plan passed to parliament in late January, the government forecasts it will spend KD16.2bn in the coming 12-month period, while raising about KD9.7bn in revenues. The non-oil sector accounts for just KD1.1bn, or 11 per cent, of projected government income.

Parliament has been asked to pass the budget by the end of March.

The budget includes the government’s four-year development plan. This is expected to cost about $100bn in total, and calls for the creation of new private sector companies to help diversify the local economy.

However, despite the forecast deficit, analysts believe the country will see a ninth consecutive multi-billion-dollar surplus in the coming year as a result of higher-than-budgeted oil prices and output.

“Every year for the past eight years, the budget has been planned on the basis of a low price for oil which is 20-30 per cent lower than the real price,” says Walid Samir, a senior analyst at the local Gulf Investment House. “We don’t believe that it will be a deficit year, but the surplus may be smaller [than the projected KD6.2bn underspend in 2009-10].”

The government has forecast an average oil price of $43 a barrel for 2010-11, with oil output totalling 2.2 million barrels a day (b/d). However, analysts at Barclays Capital, the investment arm of the UK bank, forecast an average price of $85 a barrel for oil in the US and $84 a barrel in Europe.

Samir believes prices in Kuwait may average about $60-70 a barrel.

Kuwait’s oil output in the three months to 31 December 2009 averaged about 2.26 million b/d, with demand forecast to grow in the coming year.

Production may increase as the international oil cartel Opec, of which Kuwait is a member, eases production quotas. The country has a maximum production capacity of 3 million b/d.

On the basis of an average oil price of $65 a barrel and output of 2.3 million b/d, oil revenues alone would total $54.6bn, or KD15.7bn at current exchange rates. This means the government would have a small surplus in 2010-11.

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