Kuwait Development Plan; Towards a strong beginning

Kuwait, April 2011: Kuwait Financial Center “Markaz” recently released a report titled “Kuwait Development Plan; towards a strong beginning”. The report analyzes the Kuwait Development Plan (2010-2014) in addition to the various risks associated with its success and resources to mitigate those risks. The authors of the report note that while the Kuwait Development Plan (KDP) is no doubt ambitious; with a coherent strategy, even ambitious dreams are achievable. Successfully embarking on such plans is no longer an “option” but a “necessity”. Due to rapid population growth, Kuwait needs a strategy to brave over infrastructure deficits. With a young population entering the job market with force year after year, Kuwait needs to create credible jobs for nationals. With erratic global growth and associated oil price fluctuations, state revenue needs diversification. With government being a significant employer, public sector employees need to be re-tooled to deliver prompt services. The external image of Kuwait as a static economy needs a “facelift”. What better than a scheme like KDP to achieve all of these?

The KD 30-35 bn (USD100-USD 125 bn), 5 year plan is the first in a series of five such plans, stretching to 2035, which aims to convert Kuwait to a trade and financial hub of the region.

The plan for the fiscal year 2010/2011 is comprised of 884 projects, valued at nearly KD 5 bn, spread over 4 phases and includes those which have not yet begun. As of the first half of the fiscal year, half of the projects are in either the Financial/Design Approval or Implementation phase. The majority of projects, 259 (29% of the total) are in the Final Approval phase while 141 (16%) are in the pipeline or have not yet been started.

It must be noted that mere existence of a need is not enough to launch and pull off such a grandiose scheme. In just the first half of the fiscal year, numerous risks have emerged which have proven to be obstacles in the swift and sustained implementation of the plan. There are solutions which would go a long way towards mitigating these risks; however, such actions require a committed sense of cooperation between the involved parties.

In terms of progress thus far on the first years’ plan (2010/2011), according to the semi-annual progress report, KD 735 mn has been spent on the 884 proposed projects for the year, amounting to 15% of the budgeted cost of nearly KD 5 bn. By annualizing this figure, the full year expenditure should amount to KD 1.5 bn, an actualization of 30%, which concurs with projections by the Deputy Premier for Economic Affairs, Sheikh Ahmad Al Fahad Al Sabah. Overall expenditure was fairly well split between 1Q and 2Q, with 45% and 55% of total expenditure, respectively.

The projects are split between those which directly support the KDP (Policy Projects) versus what can be termed as Recurring projects or those which are the norm and don’t necessarily follow the KDP’s policies explicitly. These are further segmented based on whether they are developmental or infrastructural in nature. 38% of the projects (334) are Policy Projects with a budgeted cost of KD 1.05 bn for the year, of which 18% has been realized. Of the Recurring Projects, which account for 62% of the total number of projects and a budgeted cost of KD 3.9 bn (or 79% of total budgeted cost), 14% of budgeted cost has been realized.

Moreover, the majority of projects, whether Policy or Recurring, are infrastructural in nature (493 projects with a budget of KD 4.2 bn); of these projects 14% or KD 589 mn has been spent. As for developmental projects (numbering 391 with a budgeted cost of KD 783 mn), 19% or KD 146 mn has been spent.

Government Spending

The financing of the plan is expected to be a 50/50 split between the government and the private sector. The exact funding mechanism has not been finalized yet and has been debated rigorously in the press and at various forums. Many projects fall under the relevant agencies own budget to be financed internally while mega-projects will look for additional government and private sector funding.

Government spending has been disparate over the last eight years with no obvious trend to be seen; spending spiked 88% to over KD 18 bn in 2009 due to a one-time transfer, without which spending would have been at KD 12 bn, a 23% annual growth. 2010 saw a 38% decline in spending while the current fiscal year forecasts spending at KD 16.3 bn, a 45% annual increase.

Development Expenditure has grown steadily since 2004, reaching over KD 1 bn in 2009, before declining 9% in 2010. The current fiscal year (2010/2011) expects Development Spending to nearly double to over KD 2 bn, in conjunction with the KDP. The 1H10 expenditures in the 2010/11 plan correspond with that which had been budgeted for the year as per the budget; the government had budgeted for a near doubling in Development Expenditure to KD 2 bn, which would accommodate the spending thus far of KD 735 mn, in addition to a full year expenditure of KD 1.5 bn should spending in the second half of the 2010/11 plan match that from 1H10.

Risk & Risk Mitigation

The launch and implementation of the KDP faces several risks. It will be useful to think through these risks as well as resources that may be needed to mitigate them. The authors have identified and analyzed the following risks:

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