New budget in Kuwait prioritises infrastructure spending

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Higher levels of public spending, supported by greater participation from the private sector, are expected to drive infrastructure projects in Kuwait over the short to medium term.

State-funded building activity will receive a major injection of funds under the draft budget, which was approved by the Cabinet on January 29, with 18% of outlays earmarked for capital expenditure.

Nayef Al Hajraf, minister of finance, told media that while the budget will remain capped at KD20bn ($66.7bn), there would be a major shift in allocations and focus.

“We believe that reform starts with curbing spending while maintaining a healthy rate of capital expenditures on infrastructure and minimising the impact of our fiscal reforms on citizens,” he said.

Much of the funding is expected to flow directly into the construction sector when the budget comes into effect at the beginning of FY 2018/19 on April 1.

Public-private partnerships dominate new projects

The government will also be looking to the private sector to play a bigger part in national infrastructure projects, with firms expected to make the shift from providing construction services to partnering for key initiatives.

In early December the Kuwait Authority for Partnership Projects (KAPP) announced that a consortium made up of the German firm WTE Wassertechnik and international financial advisors KSCC had won a contract to develop and operate the new Al Hayman wastewater treatment plant.

Located south of Kuwait City, the $1.3bn project will be carried out under a build-operate-transfer (BOT) agreement with the Ministry of Public Works. Under the contract, design and construction will be carried out over 2.5 years, followed by a 15-year operating period.

The initiative represents one of several public-private partnership (PPP) projects that KAPP is rolling out under a BOT model; others include the Kabd Municipal Solid Waste Project, a processing facility with the capacity to handle 3275 tonnes of solid waste daily, undertaken by a consortium led by French engineering firm Constructions Industrielles de La Mediterranée, and South Jahra Labour City, a residential development that will house around 20,000 labourers, carried out by five consortia headed by regional players.

Speaking to local media late last year, Nayef Al Haddad, manager of research and strategic planning at KAPP, said the first wave of low-risk developments will serve as a testbed for the country’s PPP legislation, which was ratified back in 2014, setting the scene for further projects.

Multibillion-dollar rail development project

Kuwait is similarly looking to involve the private sector in the relaunch of a landmark $17.7bn rail network project.

In late January Hussam Abdullah Al Roumi, the minister of public works and state minister for municipality affairs, said a new study on the project’s technical and financial feasibility was under way, with a focus on reducing costs and boosting its appeal to investors.

The project involves a new metro between Kuwait City and its airport and seaports, and a freight and passenger railway linking major logistics hubs with the GCC-wide rail network. Delays linked to financing and structuring the BOT model have pushed back the initiative, however, which was originally scheduled for completion in 2017.

Broader economic benefits expected from capital expenditure

Making greater use of the PPP model in infrastructure delivery will reduce public financing pressures, while also promoting development.

In early February international credit ratings agency Standard and Poor’s (S&P) said higher levels of spending on construction work should feed into stronger economic growth this year and beyond.

The agency said it expected GDP growth to average around 3% between 2019 and 2021, rising from an anticipated 2.5% this year, on increased outlays on investment projects and higher energy revenue. S&P added that the broad public investment programme, combined with moderately high oil prices forecast for this year, should support growth momentum.

Given the latest growth forecasts and the economy’s stability, S&P decided to maintain Kuwait’s credit rating of “AA/A-1+”.

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