Expectations are that the Kingdom will still see a fiscal surplus as a result of higher oil prices.
Public expenditures in Saudi Arabia are set to increase by a massive 41 percent this year after King Abdullah’s recent announcements regarding substantial financial handouts to the citizens of the Kingdom, according to an investment firm in the nation.
Jadwa Investment of Riyadh issued a report stating that the leading oil power is still expecting a fiscal surplus in place of the budgeted deficit due to sharply increasing crude oil prices and an increased oil output for the Kingdom.
With the biggest economy in the Arab world, Saudi Arabia is projecting SR 580 billion in spending for this year, with revenues of SR 540 billion resulting in a deficit of SR 40 billion.
However these budget numbers were released late last year before the political unrest and turmoil in North Africa and the Middle East helped to push the price of crude over $100/barrel. The budget figures also did not take into account the almost SR 500 billion in royal-initiated spending that has been recently announced.
Jadwa expects that actual expenditures will climb to record highs of about SR 821 billion for this year, a jump of almost 41 percent over the budgeted expenditure amounts.
But the investment firm also expects to see revenue increase by almost 70 percent, hitting SR 916 billion due to rising crude prices and higher production levels. This increase is set to transform the budget deficit into a fiscal surplus of around SR 95 billion for 2011. It will also be the second consecutive year that the Kingdom’s budget recorded a positive balance. There was a SR 109 billion surplus reported last year.
In 2009 lower oil prices and rising expenditures resulting from measures put in place to counter the fiscal crisis combined to create a SR 87 billion deficit in Saudi Arabia, the first such thing seen in almost ten years. The Kingdom had just reported a massive, record high fiscal surplus of SR 581 billion for 2008, on the backs of $95/barrel average oil prices.
In 2011 the Kingdom will see a massive increase in medium-term expenditures and government spending, much higher than was originally anticipated. But, as the price of oil and the levels of production are also going to increase well above early forecasted amount, the study stated that a budget surplus is expected for both this year and next.
Expectations for 2012 are that due to one-time investments like the two-month salary bonus, Real Estate Development Fund, General Housing Authority and Saudi Credit Bank funding and additional investments in the Ministry of Health, the levels of government spending will fall next year. Many other minor components of the current spending package are also one-time deals.
Other elements of the package will be more difficult to cease. The study’s forecasts did not account for the withdrawal of the pay adjustments geared at pubic sector workers. They foresee permanence in that regard.
Increasing oil revenues should be enough to maintain a surplus for both 2011 and 2012 in spite of the increased spending amounts, according to Jadwa.
Jadwa stated that in 2012 recorded public spending should decrease to the SR 777 billion level and revenues should be maintained at about SR 833 billion. These figures indicate a surplus of almost SR 56 billion for next year.
Expectations in the report state that the fiscal surpluses over the next few years will result in the Kingdom continuing to reduce the public debt levels to SR 160 billion by the end of this year, down from the SR 167 billion seen in 2010. The same reductions should hold for the end of 2012.
These reductions will decrease the debt ratio, moving it from the 10.2 percent of GDP reported last year to only 8.2 percent on GDP for this year and next.
Saudi Arabia was under heavy pressures due to escalating public debt seen in the late 90’s and early in the new century. This debt was a result of substantial budget deficits and has been cut back in the last few years thanks to surging crude prices. In 1999 the Kingdom’s debt was nearly equal to its GDP. By 2004 it had been decreased to SR 614 billion, 65 percent of the nation’s GDP. By the close of 2008 it sat at about 13.3 percent of GDP, totaling SR 237 billion.
Strong prices for oil made Saudi’s gross foreign assets soar from just $128 billion at the close of 2004 to almost $520 billion by the end of last year. Jadwa predicts that they will increase even further to $595 billion by the close of this year and rise to $637 billion by the end of next year.Paul Holdsworth, Staff Writer, Gulf Jobs Market News