(Reuters) - Kuwait's parliament on Wednesday approved a state budget for the current fiscal year that envisages a budget deficit of 8.18 billion dinars ($27.0 billion) - nearly half total spending - because of low oil prices.
The budget for the year that began on April 1 features spending of 19.17 billion dinars and revenues of 12.2 billion dinars, assuming an average oil price of $45 a barrel during the year. The deficit of 8.18 billion dinars would be reached after the transfer of 10 percent of the revenues to the Future Generations Fund, part of Kuwait's sovereign wealth fund.
The actual deficit may not turn out to be nearly as large - Brent crude oil is currently trading above $60. The deficit will be about 4.5 billion dinars if oil stays in the mid-$60s, Finance Minister Anas al-Saleh told members of parliament.
Also, Kuwait has in the past often underspent its budget because of bureaucratic red tape and tensions between the cabinet and parliament that have slowed economic projects. This could also limit the deficit.
Nevertheless, the budget plan underlines the dramatic change in Kuwait's finances due to last year's plunge of oil prices, which has slashed its export earnings.
The government posted an estimated deficit of 2.31 billion dinars last fiscal year, after contributions to the Future Generations Fund - its first deficit since the 1999/2000 fiscal year, Saleh said.
No decision has been taken on how to fund this year's deficit, he told Reuters. "We will choose the source based on Kuwait's best interest."
State news agency KUNA quoted Saleh as saying: "This situation requires us to speed up the efforts to embark on financial reforms, ration public spending and reduce reliance on oil resources as the main source of national income." It did not elaborate on the planned reforms.
Kuwait's huge financial reserves mean it remains far from any fiscal crisis; its sovereign wealth fund holds $548 billion of assets, estimates the Sovereign Wealth Fund Institute, which tracks the industry.
In the 2013/14 fiscal year, Kuwait posted a budget surplus of 4.96 billion dinars, Saleh said.