Saudi Arabia has maintained a counter-cyclical economic policy by increasing financial reserves and reducing public debt during periods of “high public revenue,” according to Minister of Finance  Ibrahim al-Assaf.

Bloomberg

Saudi Arabia’s budget for 2015 will fund “massive” development projects, the Saudi Press Agency reported, citing Finance Minister Ibrahim al-Assaf.

Next year’s budget, which will be presented to the cabinet soon, will focus spending on healthcare, education, social services and security, the official news service said. The ministry slowed the pace of planned spending increases in this year’s budget to 4.3%, compared with almost 20% in 2013. The 2015 spending plan hasn’t been released and will have to accommodate a plunge in the price of oil, which underpins the kingdom’s economy.

“They’re going to keep spending reasonably firm but slow the pace of growth,” James Reeve, an economist at Samba Financial Group in London, said in response to e-mailed questions. The country’s rulers have invested a lot of political capital in major projects “and they are not about to pull them. Nor are they going to start cutting spending on salaries,” he said.

King Abdullah has allocated a record amount of money to build roads, industrial centres and airports as he seeks to reduce the country’s oil dependency and to stimulate economic growth. Government spending has been driven by crude prices averaging above $107 a barrel since the end of 2011. Oil is now trading at about half that level, having slumped to its lowest since 2009. Al-Assaf said the 2015 spending plan was drafted “in challenging times.”

Saudi Arabia has maintained a counter-cyclical economic policy by increasing financial reserves and reducing public debt during periods of “high public revenue,” SPA cited al-Assaf as saying. This has provided the country with “lines of defence” in times of need, including the global financial crisis of 2008, he said.

“This policy will continue in the next budget,” he said.

In response to the 2008 crisis, Saudi Arabia said it would spend $400bn over five years to stimulate the economy and create jobs. Then in 2010, the Arab world’s biggest economy announced a separate $384bn development plan. Economic growth accelerated from 1.8% in 2009 to 7.4% the following year and 8.6% in 2011, according to data compiled by Bloomberg.

Saudi Arabia will achieve “positive” economic growth, resulting from government spending and support for the private sector, SPA cited al-Assaf as saying. Growth this year is forecast at 4.4%, the second-fastest pace along with the UAE in the six-nation Gulf Cooperation Council after Qatar.

“I expect the budget to be big enough to create confidence that the economy won’t grind to a halt all of a sudden and bring confidence to investors in the stock market,” said John Sfakianakis, Middle East director at Ashmore Group. “The focus of spending will continue to be on the twin pillars of human capital formation and capital investments.”

 

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