Accelerating Budget Deficit Threatens Salaries

The Ministry of Finance announced a recent update of the main data for the 2020/2021 budget raised the expected deficit to KD14.055 billion dinars, compared to KD7.714 billion in the estimated budget, which highlights the extent of the difficult challenges placing pressures on the financial performances of the state, Al Rai daily reported.

The pessimism is increasing about the possibility of this historical deficit rising, especially as the risks of running out of liquidity are increasing on the general budget at a time when real solutions are not being presented, the daily pointed out.

In addition, oil prices have fallen below the standard prices, which is adding to the blurring of the upcoming financial situation, due to reaching prices of 30 dollars per barrel, down from 55, which means incurring billions of losses in oil revenues during the current year. The situation is further dire compounded by the fallout by the repercussions of coronavirus crisis that reduced demand, and caused oil prices to decline. This has prompted an expectation of widening fiscal gaps, especially with government revenues being heavily dependent on oil.

Relying on debt issuance seems to be a good way now for Kuwait to get out of the crisis and to fill the budget shortfall, however, failure to adopt remedial measures will expose the public budget and the country’s credit ratings to a more difficult situation. It is likely by the end of the current fiscal year actual deficit rates will be recorded with new limits much greater than ever, which is expected to weaken the real ability of the state to cover its actual obligations, especially salaries and subsidies, during the coming period.

For its part, Alshall stated in its weekly report that the pressure on oil revenues comes from two directions, losing about 15-16 percent of the volume of oil production over two fiscal years, and losing about 45 percent of the estimated price of a barrel of Kuwaiti oil which has impacted the current budget. This indicates that the estimated deficit in the current budget increased 3.6 times than the deficit in the previous year, while expenditures decreased by 4.2 percent only.

In a related development, the National Bank indicated in its weekly report that the returns of Gulf bonds – which are usually subject to different dynamics and bear more risks compared to developed countries – indicated that the region is on its way to reach a record level of debt in 2020, as governments seek to achieve financing the growing deficits caused by the outbreak of the coronavirus pandemic in conjunction with the decline in oil prices.

 

SOURCE : TIMES KUWAIT

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