Kuwait is running out of money for the salaries of public servants and will have no money to cover these after November, the country’s finance minister told parliament.
Unless oil prices rise, the money being used now, withdrawals from the General Reserve Fund, will simply be depleted, Middle East Monitor reports, citing the official, Barak Al-Sheeran.
Kuwait’s budget deficit hit $18.44 billion in fiscal 2019-2020, which ended in March. The deficit will widen this fiscal year on the back of the oil price collapse and the pandemic, potentially reaching $45.78 billion (14 billion dinars). This is up from a previous deficit projection of $25.18 billion (7.7 billion dinars).
In January this year, when Kuwait was budgeting for fiscal 2020-2021, the size of the deficit stipulated in the budget was $3.33 billion, based on oil price projections of $55 a barrel of Brent. The budget gap was 19 percent higher than the deficit for the previous fiscal year as the country relies almost entirely on oil revenues for its income and had not been able to shake off the effects of the previous oil price crash before this one hit.
To avoid depleting the fund it uses to cover the current shortfall and keep paying salaries to its administration, Kuwait’s parliament is debating a new debt law that will untie the government’s hands to borrow up to $65.4 billion (20 billion dinars) over the next 30 years.
The General Reserve Fund shed as much as $13.04 billion (4 billion dinars) in just a hundred days since the pandemic hit, according to Kuwait’s sovereign wealth fund, the Kuwait Investment Authority.
Kuwait is one of the six Gulf economies that are too dependent on oil revenues for their own comfort. In a recent forecast from analysts polled by Reuters, the Gulf economies were all expected to contract this year before they rebounded in 2021. Judging by the latest from Kuwait, not all would be able to rebound so soon.
By Irina Slav for Oilprice.com
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With such a financial cushion, Kuwait has the luxury of continuing to withdraw money from its sovereign fund or borrow in the market until oil prices rise significantly.
I personally believe that the global oil demand is very much on the mend with oil prices projected to hit $45-$50 in 2020 and touch $60 in early 2021.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London