Kuwait’s budget deficit is likely to reach 13% of gross domestic product compared to last year’s figures, according to a report by the National Bank of Kuwait.Meanwhile, the country’s National Assembly approved the budget for the fiscal year 2016/17 with an official deficit projection of KWD 8.7 billion, or 26% of gross domestic product.
The report lowered budget deficit’s projections for being “significantly smaller as the price of oil for the fiscal year is expected to average above the $35 per barrel assumed in the budget”. However, it has also triggered much needed fiscal and structural reform, the report added.
Total Revenues are estimated to decline for the third consecutive year and seen 16% lower in FY16/17 at KWD 10.2 billion.Lower oil price assumption of $35 per barrel is the key driver behind possible revenues’ decline.“While the budget assumes slightly higher oil production of 2.8 million barrels per day, oil revenues are seen declining on a lower oil price assumption of $35 per barrel, compared to last year’s $45. With oil prices currently hovering around $40 per barrel”, the reported clarified.
The bank expects oil revenues to be around 35-40% higher than official projections, and to be mostly unchanged from the year before.Meanwhile, non-oil revenues are budgeted at KWD 1.6 billion, up 11% from the previous year, though they remain a small share of total revenues.Moreover, government spending is forecast to slightly decline on the heels of a year which saw overall spending cut by over 17%, but to maintain healthy levels despite the lower oil price environment.
At last, the report expected the 10% corporate income tax to replace existing corporate earnings regarding measure that will broaden the tax base.In addition authorities are also preparing to introduce a 5% VAT in conjunction with other GCC countries.“Both measures will require legislation and already appear to be behind schedule”, the report concluded.
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