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Saudi budget to record high surplus in 2009

Strong oil prices will allow Saudi Arabia to bask in a high budget surplus for the seventh successive year in 2009 despite a sharp increase in expenditure and hidden spending by Saudi Aramco , a Saudi investment firm said yesterday.

The Riyadh-based Jadwa Investments said the surplus would be much higher than had been expected although the world's oil superpower had projected a deficit when it announced its record 2009 budget in late 2008.

In its monthly economic bulletin, Jadwa said the surplus could even more than double in 2010 because of an expected surge in the kingdom's revenue.

The company said the improvement in crude prices over the past two months had prompted it to revise up its previous forecasts about the average price of Saudi crude to just above $60 a barrel this year from around $55. Its figures showed WTI prices averaged around $60 a barrel so far this year and expected them to hover at $75 for the rest of the year.

"Based on the assumption that WTI averages $75 per barrel for the remainder of the year, we have increased our oil price forecast to $62 per barrel from $58 per barrel (for Saudi crude the rise is to $60.8 from $55.7)," it said. "As a result, we now expect the kingdom to record a budget surplus and smaller than previously expected current account deficit. The key change to our forecast caused by the higher oil price is that we now expect a budget surplus of around SR46 billion (Dh45.5bn) or about 3.4 per cent of GDP, compared to a budgeted deficit of SR65bn."

Jadwa's forecasts are far higher than projections by another Saudi investment company - NCB Capital - which last week forecast a surplus of SR5bn.

NCB Capital estimated the Saudi budget was based on an oil price of $48 a barrel, but Jadwa put the average price at $48 and the kingdom's crude output at 8.1 million barrels per day compared with more than nine million bpd in 2008.

"Oil prices are much higher than this assumed level yet the surplus is only expected to be relatively small. We think this is because spending is running well ahead of target... it is important to note that not all public sector spending is captured in the budget numbers. For example, spending by Saudi Aramco reduces the amount of oil revenues transferred to the government budget and is not classed as government spending," Jadwa said.

"Although we expect the government to have greater revenues, we have not altered our projection for government spending. This is because the government was already spending very aggressively in order to stimulate the economy and was comfortable financing this by drawing down reserves, if necessary."

The report said the additional revenues resulting from higher crude prices are not large enough to impact on the five-year spending programme the government is pursuing. It noted that government spending has been the main stimulus to the economy so far this year, but activity outside of those firms directly benefitting from this has been sluggish due to credit tightness.

It forecast a sharp rise in the kingdom's budget surplus to around SR122bn in 2010 on the back of a 17 per cent growth in government revenue to around SR716bn from a projected SR611bn in 2009. With the expected surplus in 2009, the kingdom will likely accumulate a total fiscal surplus of SR1,447bn since 2003 compared with a cumulative deficit of more than SR500bn in the previous seven years.

Experts said the massive surplus was the main reason for the sharp growth in Sama's assets during the past seven years of oil boom.

As for the current account, the report said higher oil export revenues have improved the outlook for the balance. But it added the account would still record a slight deficit this year of around 0.8 per cent.

"This will be the first deficit since 1998, but at such a small size it does not pose a problem for the kingdom. A modest downward adjustment to our import forecast has also contributed to the slimmer current account deficit forecast," it said.

Its figures showed imports were down 16 per cent over the first eight months of the year compared to the same period of 2008. For August alone, the decline was 29 per cent as the largest monthly import total of last year was recorded in August mainly because of very high commodity prices. Non-oil exports were down by 22 per cent over the first eight months compared with the same period of 2008.

By Nadim Kawach

© Emirates Business 24/7 2010