Saudi Arabia set to keep spending high |
|
Text Size 
Saudi Arabia is expected to approve higher expenditure for 2009 when it unveils its state budget just before the end of this year despite the recent plunge in oil prices, experts said yesterday.
But the world's dominant oil power will again assume a conservative price for its oil as it had done in the past five years to ensure the budget will remain in surplus and the Kingdom has enough funds to rebuild its finances.
"I don't think the Kingdom will reduce expenditure next year despite the strong link between expenditure and oil prices," said Saleh Al Sultan, a former adviser at the Saudi Ministry of FinanceSaudi Ministry of Finance
."Actual budgetary expenditure has grown by an average 20 per cent annually during 2004-2007 and I think the policy of increasing spending to ensure growth will remain in force because the government has always forecast conservative not high prices for its oil," he told the Saudi daily Alriyadh.
Strong oil prices over the past years have tempted Saudi Arabia to exceed forecast spending, which climbed to a record SR466 billion (Dh461bn) in 2007.
But the budget recorded one of its highest surpluses of around SR176bn (Dh173bn), far above the projected SR20bn surplus.
Experts said Saudi Arabia needs to keep government spending high as it is still the wheel of economic activity in the Kingdom despite a surge in the private sector over the past 10 years within a reform drive.
"Saudi Arabia can not make deep cuts in spending because most of it is current expenditure, including salaries for civil servants and government allocations for services," said Malik Yunus, an economist at the National Commercial BankNational Commercial Bank
, the largest bank in Saudi Arabia."Any cut will affect development spending and this will naturally depress growth in the domestic economy and hamper the Kingdom's efforts to find jobs for its citizens. It will also send a negative message to the market," he said.
Oil provides more than two thirds of Saudi Arabia's income and their plunge to nearly a third of their peak of around $150 in July along with cuts in the Kingdom's output is expected to seriously depress its revenues.
Saudi Arabia, which controls nearly a quarter of the world's recoverable crude deposits, is expected to announce its 2009 budget in December and analysts said it would reflect Riyadh's outlook on output and prices.
Although the 2009 budget could be far above the 2008 forecast spending, the actual expenditure is expected to be restrained through 2009.
"Given the present conditions in the oil market, I expect spending to be forecast at not more than SR500bn... if oil prices recovered to nearly $70, actual expenditure could reach SR600 billion but if they remain at $50 a barrel, then actual spending could be around SR540bn," Al Sultan said.
"Even if oil prices dip to $40 a barrel, I expect spending to maintain momentum next year... there are several factors that support my view, including the sharp growth in the Kingdom's savings over the past years... any way, the present conditions require maintaining high spending and I believe this will be the case in 2009 and even 2010."
According to the Saudi Arabian Monetary AgencySaudi Arabian Monetary Agency
, the Kingdom's Central Bank, Riyadh largely overshot spending in 2007 despite lower revenue.Actual revenues stood at around SR642bn in 2007, while they hit an all-time high of nearly SR673bn in 2006 although the price of Saudi Arabian crude averaged nearly $70 last year compared with $60 in 2006.
The revenues included nearly SR604bn in oil export earnings in 2006 compared with SR562bn in 2007, according to Sama.
The decline was caused by a drop of 400,000 barrels per day in the Kingdom's oil output from nearly 9.2 million bpd to 8.8 million bpd.
Mammoth budget surpluses over the past three years have allowed the Opec de facto leader to slash its soaring public debt and rebuild foreign assets after a sharp decline in late 1990s due to persistent budget deficits and relatively low oil prices.
The public debt hit a record SR690bn to exceed the country's gross domestic product in 1999 before it dipped below 20 per cent of the GDP at the end of 2007.
The Kingdom's foreign assets also rocketed above SR1.7 trillion at the end of October from only SR190bn at the end of 2001.
As oil prices are heading for their highest nominal average of around $100 a barrel this year, Saudi Arabia's budget surplus is expected to leap above SR500bn, nearly triple its 2007 budget surplus.
"Higher oil revenues will sharply lift the budget surplus in 2008. We expect the surplus to be around SR565bn in 2008," NCBNCB
said."However, the government will most likely exceed budgeted expenditures by an average of 13 per cent to 15 per cent, to reach around SR507bn... the government's inflation alleviation package, which includes a public sector pay rise and direct subsidies on foodstuffs, building materials and other consumer goods will probably be one factor for the government's overspending this year," the NCBNCB
said.By Nadim Kawach
© Emirates Business 24/7 2008
Community Comments (0) - 
Comment on this article 
Comment on this article
The opinions of the authors expressed herein do not necessarily state or reflect Zawya. Read our Comment Policy.
Loading ...
Zawya Comment Policy:
-
Zawya encourages you to add a comment to this discussion. You agree that when you add content to this discussion your comments will not:
1.1 Contain any material which is libelous or defamatory of any person, is obscene, offensive, hateful or inflammatory or causes damage to the reputation of any person or organisation.
1.2 Promote sexually explicit material, violence, discrimination based on race, sex, religion, nationality, disability, sexual orientation or age or any illegal activity.
1.3 Be made in breach of any legal duty owed to a third party, such as a contractual duty or a duty of confidence.
1.4 Be threatening, abuse or invade another's privacy, or cause annoyance, inconvenience or needless anxiety.
1.5 Be used to impersonate any person, to misrepresent your identity or affiliation with any person, or be likely to deceive any person.
1.6 Give the impression that they represent Zawya.
1.7 Advocate, promote or assist any unlawful act such as (by way of example only) copyright infringement or computer misuse. - The content posted on www.zawya.com is created by members of the public. The views expressed are theirs and unless specifically stated are not those of Zawya. Zawya reserves the right to review all comments prior to posting and edit or delete any contribution, but Zawya is not responsible for and can not be held liable for any content posted by members of the public on www.zawya.com.
- Zawya is not responsible for the availability or content of any third party sites that are accessible through www.zawya.com. Any links to third party websites from www.zawya.com do not amount to any endorsement of that site by Zawya and any use of that site by you is at your own risk.
- By submitting your comment, you hereby give Zawya the right, but not the obligation, to post, air, edit, exhibit, telecast, webcast, re-use, publish, reproduce, use, license, print, distribute or otherwise use your comments worldwide, in perpetuity.
Community Buzz
Stories
Companies
Most viewed companies by Community in the last 24 hrs
| Company Name | Country | Industry |
| Consolidated Contractors Company | Overseas | Construction and Design |
| Saudi Binladin Group | Saudi Arabia | Construction and Design |
| Nissan Motor Egypt | Egypt | Transportation Products |
| Saudi Telecom | Saudi Arabia | Telecommunications Services |
| Ministry of Health - Saudi Arabia | Saudi Arabia | Ministries and Municipalities |
| KIA Motors Saudi Arabia | Saudi Arabia | Transportation Products |
| Saudi Arabian Oil Company | Saudi Arabia | Oil |
| Federal Electricity and Water Authority | UAE | Electric Utilities |
| General Motors Middle East | Region-wide | Transportation Products |
| Sohar Power Company | Oman | Electric Utilities |
Projects
Most viewed projects by Community in the last 24 hrs
| Project Name | Country | Sector |
| Ras Girtas Power Company - Ras Girtas IWPP | Qatar | Power and Water |
| IGD - Gasco - Habshan 5 Gas Processing Plant | UAE | Oil and Gas |
| Emirates Aluminium (EMAL) - Smelter Complex | UAE | Industry |
| SATORP - Jubail Refinery and Petrochemical Complex | Saudi Arabia | Oil and Gas |
| Takreer - Ruwais Refinery Expansion | UAE | Oil and Gas |
| Qatar Foundation - Sidra Medical and Research Center | Qatar | Real Estate |
| Aramco/Dow Chemical - Ras Tanura Integrated Refinery and Petrochemicals Complex | Saudi Arabia | Oil and Gas |
| Dubai RTA - Dubai Metro | UAE | Infrastructure |
| Abu Dhabi Ports Company - Khalifa Port and Industrial Zone (KPIZ) | UAE | Infrastructure |
| SATORP- Jubail Refinery and Petrochemical Complex - Conversion Unit and Sulphur Package (Part 2) | Saudi Arabia | Oil and Gas |