<article><p class="lead">Kuwait's parliament has approved amendments to its 2020-21 budget, which now projects a massive deficit of 14bn Kuwaiti dinar ($46bn) after taking into account the financial impact of the Covid-19 pandemic and the resulting fall in oil prices. </p><p>Opec producer Kuwait's economy is heavily dependent on hydrocarbons, making it particularly susceptible to any downturn in global oil prices. The new deficit projection is around 52pc larger than the KD9.2bn that was forecast in the <a href="https://direct.argusmedia.com/newsandanalysis/article/2051567">original budget for the current fiscal year</a>, which began on 1 April. This would be the seventh consecutive year that Kuwait has posted a deficit.</p><p>The amended budget bill projects state revenues of just KD7.5bn ($23bn) in the 2020-21 fiscal year, almost half of the KD14.8bn that was forecast in the original budget bill. The drop in projected revenue is primarily a result of the collapse in oil prices since the pandemic took hold earlier this year. In the original budget, oil and gas revenues alone had been projected at KD12.9bn, or 87pc of the state's overall revenues. But that was based on an oil price of $55/bl and crude output of 2.7mn b/d, both of which are considerably higher than current levels. Kuwait's crude production has been constrained since the latest Opec+ agreement came into force in May. The country committed to cap its crude output at 2.17mn b/d in May-July, 2.3mn b/d in August-December and 2.43mn b/d from January 2021 to April 2022. </p><p>The new revenue forecast has been based on an oil price of $30/bl. Meanwhile, projected state spending has been reduced by around KD1bn to KD21.5bn, amid efforts to rationalise spending across a wide range of sectors. Back in March, state-owned KPC instructed all its subsidiaries to cut both capital and operating expenditure in response to the fall in oil prices. </p><p>Kuwait has been carrying out a review of the country's finances since early May, following a warning by the country's emir Sheikh Sabah al-Ahmad al-Jaber that the decline in oil prices could have an adverse impact on Kuwait's "financial solvency". He said at the time that that he had directed the review to "rationalise the use of our resources" and reduce the economy's dependence on "one depleted resource". </p><p>Ratings agency Moody's placed Kuwait's Aa2 long-term issues rating on review for a downgrade in March, citing a "significant decline in oil prices, combined with weak governance that could have very significant implications for Kuwait's capacity to finance its borrowing needs in the next few years".</p><p class="bylines">By Nader Itayim</p></article>
