Where did a quarter trillion dollars go?

Anas Al-Saleh

Anas Al-Saleh

KUWAIT: The state gained KD 231.1 billion during 15 years of surplus, which is more than three quarters of a trillion dollars, and despite this the state is heading for austerity and reducing subsidies following the first year of deficit. This issue is dominating discussions in diwaniyas and creating depressing questions: Where did the billions of the surplus years go? Were they stolen? Were they lost in squandering left and right? Did the state fail in managing them? Those questions were presented to Deputy Prime Minister, Finance Minister and Acting Oil Minister Anas Al-Saleh, so what was his answer?

Kuwait left the deficit era in 2000, and achieved surpluses over 15 consecutive years, during which huge amounts accumulated, reaching KD 52.2 billion, which were sent to the general reserve fund, in addition to KD 33.6 billion that was transferred to the future generations fund. The last surplus years were in 2013-2014, then after that the general budget recorded its first deficit in fiscal year 2014-2015 of KD 2.72 billion, but it was not a true deficit – rather it was a deficit on paper resulting from transferring 25 percent of income (nearly KD 6.32 billion) to the future generations fund.

‘Rich years’
Calculations of official figures that were published on the finance ministry site showed the state earned nearly KD 231.1 billion over the past 15 years, most of which came from selling oil. This large figure that is over three quarters of a trillion dollars, which is nearly KD 165 million for each citizen, makes disappointment warranted, as people feel the savings of the ‘rich years’ did not help in the first deficit years.
This is only half the truth – the other half is that state expenses jumped tremendously during the surplus years 4.7-fold over what they were in 1999-2000 (from KD 4 billion in 2000 to KD 18.9 billion in 2014), and particularly salaries jumped during the same period nearly fourfold of what they were from (1.3 billion to more than KD 5 billion).
It can be said that of the KD 213 billion gained by Kuwait over 15 years, one third of it was saved between the general reserve and future generations fund (32.3 percent) and two thirds was spent on current and capital expenses (67.7 percent).

General reserve
Saleh said what the state made in surplus over the past 15 years is kept in the general reserve of the state and did not evaporate as some people think. He said the rationalization the state is heading to is more linked with the deficit registered in state deficit for the current and next year, and not because of weakness in Kuwait’s economy. Saleh said the surplus in the budget over the past 15 years accumulated in the reserves one year after the other, so the financial situation of the state is strong and does not call for alarm, but as for the annual general budget, it is facing pressure and the deficit needs to be covered.

Saleh explained that despite what the state has in reserves, from the accounting aspect, the surplus is sent to the general reserve, and 10 percent of revenues are taken for the future generations fund, contrary to the registered deficit which needs yearly coverage and cannot be moved to the general reserve without coverage, be it by withdrawing from the reserve or by financing through known borrowing tools.

Saleh said the state’s general budget came under pressure because of the sharp drop in oil prices in world markets, so the financial directions included taking measures and having programs that aim at rationalizing spending and reducing spending items. He said efforts of the finance ministry are currently focused on adopting rational financial policies that guarantee not overspending, and avoiding decisions that constitute new financial burdens on the public budget, especially since oil revenues dropped by 74.2 percent, so estimates of oil revenues in the new budget is nearly KD 5.8 billion, 78 percent of total revenues. – Al-Rai

This article was published on 31/01/2016