Appendix I. The Main Components of the Fiscal Strategy
Macroeconomic forecasts: The fiscal strategy contains information on the macroeconomic situation and outlook and forecasts for:
(a) The forthcoming budget year and two further years, actual results for the two years prior to the current year (prior to the forthcoming budget year), and the estimated results for the current year of the economic aggregates that are most relevant to the fiscal strategy, including:
(i) GDP and its components;
(ii) consumer prices and deflators;
(iii) unemployment and other labor market indicators;
(v) oil and gas prices and production;
(vi) exchange rates and other relevant prices;
(vii) current account, external reserves, and the balance of payments;
(viii) assumptions underpinning the forecasts;
(ix) forecasts from international organizations or private sector institutions.
(b) Medium-term macroeconomic forecasts affecting fiscal policy, targets or limits for fiscal rules and compliance with the fiscal responsibility principles.
• Fiscal framework: The fiscal framework section of the fiscal strategy contains fiscal forecasts, including the government’s planned fiscal aggregates for:
(a) The forthcoming budget year and two further years, actual results for the two years prior to the current year (prior to the forthcoming budget year), and the estimated results for the current year, including:
(i) expenses by total, aggregated economic classification, and functional classification;
(ii) revenues by classification, showing types of revenues;
(iii) overall and primary balance of revenues and expenses for the consolidated budget;
(iv) capital expenditures;
(v) level of debt, assets, borrowing/saving, and transfers to the Reserve Funds;
(vi) any other information the minister of finance determines is material to the fiscal strategy;
(vii) key assumptions on which the above numbers are based;
(viii) sensitivity analysis, taking account of possible changes in macroeconomic conditions.
(b) Forecasts for the medium term used in formulating fiscal policies in the fiscal strategy (such forecasts would take account of the impact of changes in demographics and other factors).
Fiscal policy: The fiscal framework section of the fiscal strategy also contains the government’s fiscal policy for the forthcoming budget year and two subsequent years, including:
(a) An explanation of the fiscal policies in relation to fiscal responsibility principles and fiscal rules, and any temporary measures to be implemented to ensure compliance, including measures to moderate cyclical fluctuations and process for their reversal;
(b) Revenue policy, including planned changes to taxes and policies affecting oil revenues and other revenues;
(c) Deficit policy, including deficit limits required by or implied by the fiscal rules;
(d) Debt policy and an analysis of debt sustainability;
(e) Asset policy and intergenerational fiscal sustainability analysis;
(f) Expenditure policy, including expenditure priorities, aggregate expenditure intentions, including for the consolidated budget and other budgets; and expenditure ceilings and other targets or limits implied by or required by the fiscal rules;
(g) Fiscal risk statement, including contingent liabilities, any commitments not included in the fiscal forecasts, and all other circumstances which may have a material effect on the fiscal and economic forecasts and which have not already been incorporated into the fiscal forecasts;
(h) Summary table of all fiscal targets or limits for the fiscal rules for the forthcoming budget year and two further years, actual results for the two years prior to the current year (prior to the forthcoming budget year), and the estimated results for the current year;
(i) An assessment of the consistency of the planned fiscal policy, aggregates, and targets or limits for fiscal rules with the fiscal responsibility principles, including a statement of government initiatives to improve policy, service delivery, and the quality of spending, initiatives to reduce barriers to business and to encourage private sector growth;
(j) An explanation of the relationship of the revised fiscal strategy to the previous fiscal strategy and explanation of any significant changes.
• Medium-term expenditure framework: The fiscal strategy contains the government’s medium-term expenditure framework for spending units such as line ministries for the forthcoming budget year and two subsequent years, and has information on:
(a) The expenditure priorities and their rationale, including an explanation of how government intends to improve policy, the efficiency and effectiveness of service delivery, the quality of its regulatory activities, and its initiatives to reduce barriers to business and encourage private sector growth in various sectors;
(b) Any expenditure ceilings in addition to those required by fiscal rules;
(c) Expenditure presented by a spending unit or groups for proposed expenditure by economic classification, functional classification, and other methods of presentation;
(d) The public investment program based on the Development Plan, including priorities and rationale, estimated results for the current year and forecast costs for the forthcoming budget year and two succeeding years related to expenditure ceilings;
(e) Actual and forecast nonfinancial performance information at a suitable level of aggregation linked to the budget to show what is planned to be provided and achieved for the proposed expenditure (starting at a time when the government is ready to pursue performance assessment).
• Statement of responsibility: The fiscal strategy contains a statement of responsibility signed by the prime minister and the minister of finance attesting to the reliability and completeness of the information in the fiscal strategy and its compliance with the law.
Arezki, R. and R. Cherif (2010). Development Accounting and the Rise of TFP, IMF Working Paper 10/101 (Washington: International Monetary Fund).
Baunsgaard, T., M. Villafuerte, M. Poplawski-Ribeiro, and C. Richmond (2012). Fiscal Frameworks for Resource Rich Developing Countries, IMF Staff Discussion Note 12/04 (Washington: International Monetary Fund).
Bova, E., N. Carcenac, and M. Guerguil (2014). Fiscal Rules and the Procyclicality of Fiscal Policy in the Developing World, IMF Working Paper 14/122 (Washington: International Monetary Fund).
Cherif, R. and F. Hasanov (2013). Oil Exporters’ Dilemma: How Much to Save and How Much to Invest, World Development, 52(C), pp. 120–131.
Cherif, R. and F. Hasanov (2014). Soaring of the Gulf Falcons: Diversification in the GCC Oil Exporters in Seven Propositions, IMF Working Paper, forthcoming (Washington: International Monetary Fund).
Hasanov, F. (2013). Optimal Fiscal Policy for Kuwait: How Much to Save and How Much to Invest, Kuwait: Article IV Consultation Report, Selected Issues Papers (Washington: International Monetary Fund).
Katayama, K. (2012). Fiscal Rules: Application to Kuwait, Kuwait: Article IV Consultation Report, Selected Issues Papers (Washington: International Monetary Fund).
Schaechter, A., T. Kinda, N. Budina, and A. Weber (2012). Fiscal Rules in Response to the Crisis—Toward the “Next Generation” Rules: A New Dataset, IMF Working Paper 12/187 (Washington: International Monetary Fund).
Prepared by Fuad Hasanov.
Standard deviation of the growth rate of real oil prices, revenues, and spending was 0.3, 0.25, and 0.16, respectively, during 1986–2012.
The FGRF was established in 1976 with 50% of the General Reserve Fund (GRF) balance. In addition, 25% of all state revenues, including the net income of the GRF, are transferred to the FGRF annually. Kuwait Investment Authority (KIA) manages FGRF assets.