KUWAIT: Kuwaiti Oil and Finance Minister Anas Al-Saleh (right) and Minister of Awqaf and Islamic affairs Yaqoub Al-Sane talk with Kuwaiti Prime Minister His Highness Sheikh Jaber Al-Mubarak Al-Sabah during a parliament session at the Kuwait’s National Assembly in Kuwait City yesterday. Kuwait said it plans to tap the international debt market through bond issues to finance its budget deficit after recording a first shortfall in 16 years. — Photo by Yasser Al-Zayyat

KUWAIT: Despite the State's strong current financial position and the improvement of the state's deficit for 2016/2017, which registered at KD 5.5 billion, solid coordination and cooperation between the executive and legislative bodies is required to create the optimal environment for success, Deputy Prime Minister, Minister of Finance and Acting Minister of Oil Anas Al-Saleh said.

In his speech at yesterday's National Assembly session, the Minister added that the government has designed and launched a medium term program of fiscal and economic reforms to improve the State's fiscal balance. This reform program focuses on fiscal reform; revamping the State's role in the national economy; increasing the private sector's contribution to the economy; fostering citizens' ownership in public projects; and reforming the national labor market and civil service system, and enhance public administration and financial management.

Relevant ministries, public authorities and institutions have already begun implementation of this program, and we are hoping to achieve the expected targets in the short and medium term, the Minister explained.

"Part of this deficit improvement is due to the impact of a set of measures which have been gradually launched by the government during 2015/16 and are, as of today, part of the fiscal and economic reform program. Notwithstanding its efforts to reduce current spending, the government has maintained its commitment to continue funding capital projects of the national development plan and mega infrastructure projects equally, which contribute to higher growth, competitiveness and absorptive capacity of our national economy," he added.

Lower prices

Most of the available scenarios suggest that oil prices will remain, for the foreseeable future, lower than the levels required attaining a balanced budget, he said. "The result of the recent UK referendum has further exacerbated markets' volatility and uncertainty around the growth of the global economy. This may result in the accumulation of fiscal deficits, requiring us to carefully select safe and balanced methods of deficit finance, as we should not solely rely on using our general reserves."

When assessing financing options, it is crucial to safeguard the central bank's foreign currency reserves, he added. Equally, borrowing should neither impact the liquidity of the banking sector and thus its ability to provide the necessary funding for the private sector, nor raise the public debt to critical levels, the Minister noted.

The Ministry of Finance has been working on the preparation of a public debt strategy for the State over the coming five years to cover our expected financing needs. This year, local debt issuance to finance the deficit amounts to $750 million till 29/6/2016, while total outstanding monetary and debt policy instruments to date have reached around KD 2.3 Billion. The state's budget for fiscal year 2016/2017 has been developed under the guidance of His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, the Minister stated.

"In light of our current fiscal and economic challenges, key directives during the budget preparation were to take precautionary measures and develop programs designed to rationalize public expenditure, as well as address the shortage in State resources; this while maintaining a decent life for citizens, and not compromising their basic needs." Pursuant to these directives, and as part of the implementation of the fiscal and economic reform program, the Ministry of Finance set a spend ceiling in the draft budget for fiscal year 2016/2017 lower than that of 2015/2016. Still, this budget meets the needs of government agencies to provide all public services, with a focus on the development of education, healthcare and social security services.

Revenues

In the budget for fiscal year 2016/2017, revenues are estimated at around KD 10.4 billion, of which KD 8.8 billion in oil revenues projected at $35 per barrel; non-oil revenues are estimated at around KD 1.6 billion, while expenditures are estimated at KD 18.9 billion.

Finally, the deducted amount for the Future Generation Fund is estimated at around KD 1.05 billion. Consequently, the fiscal balance deficit for 2016/17 is expected to reach around KD 9.5 billion.

In line with the aforementioned public debt strategy, for the fiscal year 2016/17 this deficit will be financed as follows:

- Borrow up to 2 billion Dinars in debt from the domestic market in conventional and Islamic instruments.

- Borrow up to 3 billion Dinars in US-denominated bonds from international markets, in both conventional and Sukuk issuances.

- Cover the difference between the actual deficit realized and the size of the borrowing from the General Reserve of the State.

Defining the financing strategy required the establishment of a special unit to manage public debt within the Ministry of Finance, in order to draw up appropriate borrowing strategies and assess the risks associated with the various borrowing options. The unit is also responsible for overseeing the borrowing operations in cooperation with Kuwait Investment Authority and the Central Bank of Kuwait. - KUNA