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THE oil price in Kuwait’s budget for next year must reach $91.00 per barrel. This figure is based on our upcoming fiscal year budget, starting April 1, with a projected deficit of KD 6 billion (approximately $18 billion). The total budget is set at KD 25 billion, which is KD 2 billion lower than the current year’s budget. It is worth noting that the government has announced an equilibrium price to balance the budget for the first time. This budget is based on a crude oil price estimate of $70 per barrel.
However, it is unlikely that oil prices will remain at this level, as they are expected to remain within the range of $75 to $80 per barrel. Achieving a balanced budget while reducing expenses will be a significant accomplishment, but it is worth trying. The government’s goal is to cut costs, which will be a challenging yet necessary task.
At the same time, the government plans to create over 24,000 new job opportunities in the next 12 months, which will be a true challenge for our new Prime Minister and his administration. While some figures have been announced and published, the most important number in the budget has not yet been disclosed, or may have been overlooked - Kuwait’s crude oil production for the next year or the present level of crude oil production. However, we can estimate that it is around 2.8 million barrels per day, which could generate KD 22 billion in revenue.
This would result in a lower deficit of approximately KD 2.5 billion, or potentially a balanced budget with no deficit, assuming an oil price of $80 per barrel and production at 2.8 million barrels per day. If oil prices reach the projected $91 per barrel, it would be a blessing.
Currently, Kuwait is expected to incur a KD 6 billion deficit in the current fiscal year, with more than 55 days remaining to close the books before the fiscal year ends on March 31. This brings us to the challenge of tackling the KD 6 billion shortage.
The options on the table include borrowing from international banks, tapping into our sovereign wealth funds, or thinking outside the box such as privatizing some of the oil companies. The latter could serve as an effective solution, as it would provide immediate cash to the government and also strengthen the private sector. It could promote economic growth by offering job opportunities for our national graduates and encouraging private sector development. While this is a promising solution, it will require huge efforts from both the government and the private sector to make it work.
The goal is to achieve a positive budget with reduced expenses and a lower deficit compared to previous years. The question remains whether we can maintain this level of expenditure and fulfill our obligations. We wish the new government and its leadership success in reducing the budget deficit without resorting to borrowing. It is time for a new era.
By Kamel Al-Harami
Independent Oil Analyst
Email: naftikuwaiti@yahoo. com
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