Reuters/Riyadh/Dubai
Saudi Arabia has set a record state budget for next year as high oil prices allow heavy spending on welfare and infrastructure projects.
The government plans to spend 820bn riyals ($219bn) in 2013, Finance Minister Ibrahim Alassaf said as he presented the budget to King Abdullah yesterday.
That amount is 19% higher than the 690bn riyals that the world’s largest oil exporter budgeted for 2012. It is slightly below the estimated 853bn riyals that the government actually spent this year, but analysts said actual spending was on track to continue climbing in 2013.
“The 2013 budget points to a continued strong expansionary fiscal stance,” said Monica Malik, chief economist at investment bank EFG-Hermes in Dubai, who predicted actual spending would rise by 10% or more next year.
Saudi Arabia traditionally makes conservative projections for both spending and oil revenue, leaving room for actual expenditure and budget surpluses to come in much larger than initially forecast.
“Spending is still following an expansionary policy ... If oil prices go below $70, then there can be a problem, but even then what is reassuring is that there are very high foreign reserves that serve as a cushion,” Saudi economist Abdulwahab Abu Dahesh said.
He was referring to the Saudi central bank’s net foreign assets, which expanded to a record 2.35tn riyals in October this year.
Riyadh has been aggressively ramping up spending for several years because it wants to diversify the economy away from heavy dependence on oil, in case of a future plunge in global oil prices. Capital spending totals 285bn riyals in the 2013 budget, much of it going to projects such as ports, railroads and water resources. Expenditure on education and health is also set to increase sharply.
Fahd Alturki, senior economist for Riyadh-based Jadwa Investment, said that after several years of big spending rises, the economy was starting to find it harder to respond to additional government money.
Nevertheless, he predicted the budget would help Saudi Arabia grow strongly next year, especially in sectors that depend on domestic demand such as retail and telecommunications.
The country is already enjoying a private sector boom. Gross domestic product, adjusted for inflation, expanded 6.8% this year, the finance ministry said. The private sector shot up 7.5%, outpacing state sector growth of 6.2%.
The government raised its estimate of GDP growth in 2011 to 8.5% from 7.1%, without explaining why the belated revision, which was due to the completion of a census, was so large.
Next year’s budget plan envisages revenue of 829bn riyals, which implies a small budget surplus of just 9bn riyals. But if global oil prices stay above $100 a barrel, the actual 2013 surplus will be far larger.
While the 2012 budget originally envisaged revenues of 702bn riyals, they actually amounted to an estimated 1.24tn.
The budget document did not reveal the oil price level that Riyadh is assuming for next year, but Malik at EFG-Hermes calculated that the budget implied an oil price of around $64-$67 per barrel, with average Saudi oil production of about 9.5mn bpd.
Data released by the finance ministry yesterday indicated the government posted a budget surplus of 14.2% of GDP this year. Malik predicted the surplus would decline to 7.4% next year - still one of the highest in the world.