How can a country that is not spending be overspending?

17 January 2020
Kuwait's 2020 budget announced this week spells more bad news for companies in the country

Kuwait's announcement on 15 January that not only will it run a budget deficit in 2020 but that the deficit is increasing will come as a surprise to many companies in the country.

For the past four years, the lack of investment spending in Kuwait has made it an extremely difficult market for anyone involved with the projects sector to do business.

Indeed, for a market that until just a few years ago was one of the biggest projects markets in the Middle East and North Africa (Mena) region, Kuwait has in recent years become characterised by its failure to invest in infrastructure and other strategic projects.

Projects slowdown

In 2019, Kuwait awarded a mere $3.8bn of major project contracts, according to projects database MEED Projects. This was 38 per cent less than in the previous year and the lowest annual total on record.

It was the fourth year in a row that Kuwait’s project spending had fallen, and the value of awards was just 13 per cent of the level of awards seen in 2015, when nearly $29bn of contracts were awarded.

The bad news for companies in the country that have already had four challenging years is that the budget does not give any reason to be optimistic about any increase in investment spending by the government any time soon.

Salaries and subsidies account for 71 per cent of the 2020-21 budget, while capital expenses make up 13 per cent of planned expenditure.


There is no shortage of liquidity in Kuwait. The country is extremely wealthy, as are its banks. Neither is there a shortage of investment potential. The country has huge social and economic investment requirements.

The fall off in project spending is the result of tight fiscal management, conducted by the Finance Ministry with the support of the IMF since 2015, which has been all about limiting the deficit and national debt.

Of course, the country's volatile political environment that sees frequent major fall outs between the government of the day and parliament is also a factor.

So for companies in Kuwait, which are struggling to find new business opportunities and, where they are winning work, are frequently not being paid on time, they will be asking how can Kuwait be overspending when there is no spending happening?

Deficit or surplus?

Additional confusion comes from the IMF, which cites Kuwait as the only country in the region to be in fiscal surplus.

Indeed, according to the Washington-based fund, Kuwait is the only country in region whose budget breakeven point is based on oil prices that are significantly below current oil price projections.

The key factor in this is that Kuwait allocates 10 per cent of its budget to the Kuwait Investment Authority’s Future Generations Fund (FGF). The IMF considers this to be simply moving money internally and not expenditure, as Kuwait is reporting.

The most significant aspect of Kuwait’s 2020-21 budget announcement, however, is that it shows how completely dependent the government is on oil exports, which account for about 87 per cent of the country’s income.

It highlights the urgent need to diversify the Kuwaiti economy to create new revenue streams.

New Kuwait 2035

So while business in Kuwait is feeling the pain, the government says the budget highlights that it is focused on delivering the economic reforms set out in its New Kuwait 2035 strategy aimed at steering the economy away from its reliance on oil revenues.

A key part of the plan is to use private sector partnerships or public-private partnerships (PPPs) to deliver investment projects.

Sadly, this is very much an area that is affected by Kuwait's political landscape.

Kuwait has been pioneering the region's PPP ambitions for many years. But its persistent inability to deliver projects through PPP mechanisms reflects the political obstacles that planners are facing.

The upshot of this week's budget announcement therefore is that companies in Kuwait should be bracing themselves for more of the same in 2020.

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