Saudi Arabia Budget 2010 Reflects Kingdom’s Quick Economic Recovery
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The Kingdom of Saudi Arabia is ‘well positioned to reap the benefits from the rebounding global economy’, according to a report by NCB Capital Chief Economist Dr. Jormo T. Kotilaine. Increased government spending, including ‘outlays for both physical and social infrastructure development along with other diversification initiatives will likely ensure that the economy comes back to its historical growth trajectory,’ the report says in commenting on the largest budget in the Kingdom’s history.
While in 2009 Saudi Arabia posted its first deficit in eight years in the face of the global economic crisis, the actual deficit of SAR45bn was significantly less than the SAR65bn projected in the 2009 budget as a result of the rebound in oil prices to USD60 per barrel over the USD44 per barrel projected in the budget.
‘While we expected the Kingdom’s economy to contract (on real as well as nominal terms) in 2009, the 0.15% real GDP growth surprised us on the upside’ the NCB Capital report stated. In line with diversification initiatives, growth was largely driven by the non-oil sector which expanded 3.0% in 2009 in contrast to the contraction of the oil sector resulting from the fall in oil prices and production cuts due to OPEC’s quota regime. Private sector growth was registered at 2.5% while the government sector grew by 4.0%.
According to the report, the Kingdom was not immune to the global economic downturn. ‘The decline in oil prices led to a fall in the Kingdom’s current account balance in 2009. According to the Saudi Arabian Monetary Agency (SAMA), the Kingdom’s current account surplus declined 84.5% from SAR496.2bn (or 28.6% of GDP) in 2008 to SAR76.7bn (5.5% of GDP) in 2009.’
The 2010 budget projects revenues at SAR470bn, 14.6% higher than the budgeted revenues of SAR410bn in 2009 while the spending is projected at SAR540bn, 13.7% higher than the 2009 budgeted expenditure of SAR475bn. This estimated revenue and spending figure for 2010 indicates a budget deficit of SAR70bn. The NCB Capital Report concludes that, ‘a series of surpluses since 2002 has positioned the Kingdom in a financially sound position to have an expansionary fiscal policy to sustain its domestic economy in a challenging global environment.’
According to the budget summary, 48% of the Kingdom’s 2010 budget (about SAR260bn) is allocated for capital investment projects, ‘underscoring the government’s determination to improve critical infrastructure and diversify the economy’. The budget will also include increased spending on Education and Training (SAR137.6bn). Education allocations include construction of 1,200 new schools and rehabilitation of 2,000 existing school buildings during the year. Healthcare and social services comprise 11% of spending (SAR61.2bn) for building 92 new hospitals with a capacity of 17,150 beds and new primary care centers.
Budget allocations also include SAR23.9bn for road-building, ports, airports, railroad developments and new postal services. Spending to enhance water and sewage networks comprises 8.5% of the budget (SAR46.0bn). The 2010 budget also includes allocations amounting to SAR48.3bn for loans through the Specialized Credit Institutions including the Real Estate Development Fund, the Saudi Industrial Development Fund, the Saudi Credit and Saving Bank, the Agriculture Development Fund, the Public Investment Fund, and the Government Lending Program.
NCB Capital expects oil GDP to grow 4.3% in 2010. ‘With the value of exports recovering smartly in 2010, in line with our assumption of average oil prices at USD73 per barrel, we forecast 2010 surplus to stand at around SAR80bn as compared to the Saudi government’s forecast of a budget deficit of SAR70bn.’
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