VZCZCXRO8489
PP RUEHDE RUEHDIR
DE RUEHKU #0130/01 0421303
ZNR UUUUU ZZH
P 111303Z FEB 09
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 2805
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE

UNCLAS SECTION 01 OF 02 KUWAIT 000130 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR MENA 
 
E.O. 12958: N/A 
TAGS: EINV ECON EFIN KU
SUBJECT: KUWAIT PLANS 10 PERCENT BUDGET CUT 
 
REF: A. KUWAIT 111 
     ¶B. KUWAIT 79 
 
¶1. (SBU) Summary: The GoK is proposing a FY 2010 budget of 
USD 40.8 billion, off 10.4 percent (on a recurring basis) 
compared to the prior fiscal year.  The Government proposes 
cutting spending in almost all major sectors, except for 
public sector salaries, which will increase by 7.8 percent. 
Expenditure on construction projects will be slashed 26.5 
percent, compounding Kuwait's perennial inability to proceed 
with new, large-scale infrastructure programs.  End Summary. 
 
¶2. (U) Adnan Abdulsamad, head of Parliament's budget 
committee, presented the Gok's proposed budget for the fiscal 
year ending March 31, 2010.  The proposed FY 2010 budget 
calls for cuts in most sectors, with an aggregate decline in 
GoK expenditure of KD 6.9 billion (USD 23.3 billion), a 36.3 
percent reduction.  However, the GoK's FY 2009 budget 
includes a one-time, non-recurring expenditure of KD 5.5 
billion (USD  18.6 billion) relating to a recapitalization of 
the Public Institution for Social Security (PIFSS). 
Excluding this FY 2009 one-time expenditure, the GoK 
recurring budget will be cut 10.7 percent.  The table below 
shows the FY 2009 and FY 2010 budgets (excluding the one-time 
PIFSS recapitalization expenditure, which was included in the 
FY 2008 "miscellaneous" budget line): 
 
 
                                    Percent 
GOK BUDGET (USD billions)*          FY2009      FY2010 
Change 
--------------------------------------------- ----------------- 
Salaries          10.9        11.7        7.8 
Commodities       10.4        7.9         -24.3 
Transportation/equipment            0.6         1.0 
70.4 
Construction projects         5.6         4.1         -26.5 
Miscellaneous           18.1**      16.1        -11.1 
 
Total       45.6        40.9        -10.4 
--------------------------------------------- ----------------- 
 
* KD 1.00 = USD 3.39417 as of 02/09/2009. 
** Excludes one-time recap. payment to PIFSS of USD 18.6 
billion. 
 
 
It is important to note that the above expenditures do NOT 
include the 10 percent of total Government revenues that are 
always allocated to the Reserve Fund for Future Generations 
(RFFG) each year.  The RFFG is managed by the Kuwait 
Investment Authority (KIA), Kuwait's sovereign wealth fund. 
Also, these expenditure figures do not include possible costs 
associated with the GoK's recently proposed bailout/stimulus 
package (reftel A). 
 
¶3. (U) Abdulsamad also said that the GoK's projected revenues 
for FY 2010 are KD 7.8 billion (USD 26.5 billion), producing 
a projected budget shortfall of KD 4.2 (USD 14.4 billion). 
This figure comprises KD 6.7 billion (USD 22.7 billion) in 
earnings from oil exports and KD 1.1 billion (USD 3.7 
billion) in non-oil revenues.  The GoK tentatively projects 
an average price per barrel of (Kuwait Export Crude) oil of 
USD 35.00.  In recent years, the GoK has routinely predicted 
a budget deficit by using a fairly conservative estimate of 
the average price per barrel of oil.  (For example, the GoK 
predicted a FY 2008 budget deficit of USD 14.5 billion and 
instead posted a surplus of USD 26.3 billion; similarly, the 
GoK predicted a FY 2009 budget deficit of USD 26.9 billion, 
yet is on track for a sizeable surplus, having exceeded 
annual revenue projections within the first nine months of 
the fiscal year, i.e. April 2008 through December 2008). 
 
¶4. (U) In line with predictions for most of the world's 
economies, analysts predict sharply lower Kuwaiti economic 
growth for the coming fiscal year, if not an actual 
contraction.  Reduced oil revenues -- stemming from lower 
prices and lower global demand -- form the basis of such 
predictions for the Kuwaiti economy.  The Economist 
Intelligence Unit (EIU) forecasts real GDP growth declining 
from approximately 8.5 percent in FY 2009 to approximately 
3.7 percent in FY 2010.  National Bank of Kuwait's research 
director forecasts a decline in real GDP of approximately 4.0 
percent for FY 2010, a result of lower oil revenues, reduced 
consumer spending and slowing real estate sales. 
 
¶5. (U) A number of MPs continue to agitate for debt relief 
for Kuwaiti citizens (reftel B).  On February 11, six 
 
KUWAIT 00000130  002 OF 002 
 
 
National Assembly members announced that they would introduce 
an economic rescue plan to rival the USD 5.4 billion package 
recently approved by the Council of Ministers (reftel A). 
These six MPs are proposing a KD 3.5 billion (USD 11.9 
billion) plan that would either waive or suspend interest 
payments on citizens' loans and would require the KIA to 
bolster banks' balance sheets in order to encourage consumer 
lending.  Parliament's deliberations on the GOK's economic 
stimulus are expected to continue into next week. 
 
¶6. (SBU) Comment: The projected FY 2010 budget deficit 
partially reflects the GoK's tendency to use a conservative 
oil price when preparing the national budget, though current 
oil price fluctuations and diminishing global demand may 
render the target price of USD 35 as realistic rather than 
conservative.  Also, sources tell Post that the Government 
tends towards predicting budgets deficits so as to discourage 
MPs from demanding new social programs and other "pork."  The 
GoK's tentative FY 2010 budget contains cuts in most major 
sectors, amounting to a 10.4 percent decline in expenditures 
(excluding the one-time payment to PIFSS in FY 2009). 
Unsurprisingly, the GoK is increasing public sector salaries 
and benefits, so as to maintain the practice of providing 
jobs for almost all Kuwaiti adults (approximately 90 percent 
of the Kuwaiti workforce is employed by the state).  The 
GoK's modest budget for construction projects is facing a 
26.5 percent cut, compounding the nation's seeming inability 
to embark on large-scale infrastructure programs; in the past 
three months, the GoK has announced the postponement of the 
USD 15 billion Al Zour ("Fourth Refinery") project and the 
USD 2.4 billion Subiya power station project.  On 8 February, 
the outspoken CEO of Kuwait's largest bank, National Bank of 
Kuwait, Ibrahim Dabdoub, publicly urged the GoK to consider 
investments in infrastructure projects as a way of 
stimulating the faltering economy.  However, there is no 
sign, as of yet, that the GoK is willing to follow the U.S. 
and other OECD nations in embarking on large-scale 
infrastructure projects as a means of stimulating the 
economy.  End Comment. 
 
********************************************* ********* 
For more reporting from Embassy Kuwait, visit: 
visit Kuwait's Classified Website at: 
 
http://www.intelink.sgov.gov/wiki/Portal:Kuwa it 
********************************************* ********* 
JONES