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Kuwait Reports Massive Surplus in 2012 While Saudi Real GDP Growth Forecasted at 5 Percent

Middle East : 29 June 2012

Substantial Fiscal Surplus Forecasted in Kuwait for 2011/2012

The Kuwaiti fiscal surplus for 2011/2012 is expected to come in high due to budget-surpassing crude prices, according to a key bank in Kuwait.

Crude price projections in Kuwait were budgeted at $60 for 2011/2012, although the actual price averaged about $109 per barrel or 80 percent higher than projections, according to an NBK (or National  Bank of Kuwait) study.

Surging oil revenues coupled with decreased actual expenditures to create a higher than expected surplus in the Gulf emirate. NBK forecasted a surplus of between KD 11.3bn and KD 12.4bn (or $40 to $44.6bn), assuming low, base and high prices.

Actual figures have not been released by Kuwaiti officials, but NBK forecasted Kuwaiti oil earnings to hit about KD 28.2bn due to soaring oil prices, an almost 45 percent increase over the previous year.

Spending is forecasted to come in 5 to 10 percent below budgeted figures, creating a surplus of KD 11.4bn to KD12.4bn before allocations are made to the Reserve Fund for Future Generations.

Based on official figures, the 11-month surplus stands at KD 16.1bn, although end-of-year spending generally results in a decrease.

This forecasted surplus stands in stark contrast to the budgeted deficit of KD 5.9bn, which was then expected to fall to KD 7.33bn post-RFFG allocations.

Kuwaiti revenue projections came in at KD 13.445bn, based on oil revenues of about KD 12.3bn and spending of KD 19.435bn.

Based on low oil prices, NBK forecasted revenue to hit KD 29.8bn, with high oil prices pushing those revenues to KD 29.9bn.

A surplus is forecasted for 2012/2013 as well, at about KD 10.2bn and almost KD 7.2bn post-RFFG allocations.

Robust oil prices and spending cuts have resulted in massive fiscal surpluses for Kuwait in the last ten years. The emirate recorded substantial shortfalls in the 1990s, due to war expenses and lower crude prices.

5 Percent Growth Forecasted for Saudi Real GDP from 2012 to 2016

Substantial mineral resources in Saudi Arabia are expected to result in robust economic growth from 2012 to 2016. A recent Samba Financial Group report forecasted an average of 5 percent growth in the Kingdom over that period, with real nonoil sectors growing at the same rate. Inflation is expected to remain controllable, as domestic demand is handled well via imports. Rent prices will continue to be a source of pressure, although a push to increase the stock of housing could soften this impact over the coming five-year period, with inflation stabilized at 5.5 percent.

According to the report, government spending will continue to drive growth in the Saudi economy and hydrocarbon revenues should level off at about $285bn. Including totals for nonoil, the overall government revenue is expected to remain steady at around $300bn per year from 2012 to 2016.

At around 25 to 40 percent of revenue, salaries remain the main call for government earnings as Saudi has little debt to tackle.

Most Saudi Arabians consider the public sector to be the first resort for employment. Robust population growth and rapid inflation (more than 5 percent) will drive public spending on salaries higher by about 6.5 percent per year over that four-year period.

Services and supplies spending is also expected to rise at that rate, as subsidy spending increases briskly due to rising domestic gasoline consumption. Unemployment benefits spending is also forecasted to increase with more registrants take advantage of the programs. In total, current spending is forecasted to grow about 3.5 percent.

Significant room remains in capital spending, despite rising spending and while maintaining a fiscal surplus through to 2016.

Government spending will create opportunities for the private business sector, under the guidance of the NDP (or Ninth Development Plan). The NDP, running from 2010 to 2014 and valued at $385bn, is about 67 percent above the previous development plan and prepared by MEP to frame capital spending. Actual amounts and direction of capital spending may vary with circumstances.

In the past MEP has played only a minor role in economic policies, although now that former governor of SAMA Muhammad Al-Jasser has been appointed minister MEP is expected to step up and move into a key role.

Human resources remains the largest single allocation of spending, with the goal of preparing graduates for employment in the private sector. Health is another substantial area of spending, and according to a Samba report, health spending is on the rise due to population growth and increased levels of lifestyle diseases.

Utilities and transport are seeing higher allocations in spending, as pressures to provide power and adequate roads continue in Saudi Arabia. Housing and municipal services have been overlooked in the past, but pressures and changing population levels should result in more allocations for both. The private sector will find opportunities in the expansion of these sectors.

Investments are also being directed to undeveloped areas of the Kingdom, including Jazan Economic City and Hail’s Prince Abdul-Aziz Bin Mousead Economic City.

Diversification has been given broad priority, although exploiting Saudi’s massive hydrocarbon reserves makes good economic sense. Refining also provides opportunities along the product line, according to Samba’s report. Nonoil exports are expected to increase and help with diversification, reducing the risk of external shocks and enhancing sustainable growth.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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