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Study estimates 18.1 percent surplus in Kuwait's 2014/15 budget
April 12, 2015, 4:42 pm

Kuwait's 2014/2015 is expected to have a KD 8.3 billion surplus, 18.1 percent of GDP, down from KD 12.9 billion, 26.3 percent in 2013/14, according to a specialized study issued on Sunday. "This incorporates our estimate that nominal GDP will fall by 6.3 percent in fiscal year 2014/15 year-over-year," said the study prepared by the Research and Consultations Department at the Kuwaiti Institute of Banking Studies (KIBS).

Government expenditure in the FYs 2014/15 and 2015/16 "should remain largely unaffected" by the dramatic fall of Brent crude oil price that hit a low of US$ 45.13 in January 2015, a decline of 65 percent since reaching a peak at US$128.14 in March 2012, it added. "Over the past 20 years, year-over-year changes in government spending have remained largely insensitive to annual changes in the average Brent oil price, the study, entitled "The Impact of Lower Oil Prices in Kuwait and on the Kuwaiti Banks?", noted.

"Were the government to spend KD 21 billion in 2015/16 (an increase of 4.5 percent over our 2014/15 forecast) and the Brent oil price to average USD 60 per barrel, we estimate GDP would be KD 38.8 billion (a decline of 15 percent from our 2014/15 forecast), and that the government would run a small and entirely manageable fiscal deficit of 2.6 percent of GDP," the KIBS said.

Given the fact that changes in the oil price determine the government's fiscal balance, whose total revenue mainly depends on oil, about 90 percent, the study concludes that "oil price movements do have a material impact on system-wide bank deposits." All the same, 'excess' funding among the Kuwaiti banks suggests that slower deposit growth, caused by lower oil prices, should have little effect on the provision of credit.

The study sees "no particular risk to loan book quality from the recent decline in the oil price. The level of non-performing loans to gross loans is correlated to activity in the real-estate market and more volatile elements of private non-oil output." Were oil prices to average US$ 60 per barrel and the government to spend KD 21 billion, we estimate a fiscal deficit of KD 1 billion, it said.

The stated aim of this study was to investigate the extent to which lower oil prices could lead to a freeze or reduction in government spending, or lower spending by domestic residents, or less growth in deposits, which in turn could lead to slower loan growth. 

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