Big Spender Saudi Arabia upholds high budget

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Determined to push past global economic crises and spiraling political unrest in the Middle East, Saudi Arabia’s recently announced all-time high expenditure plan is part of a strategy to bolster the Kingdom’s economic solidity.

Saudi Arabia’s council of ministers on Saturday agreed a record budget for 2013 with revenues expected to hit 820 billion riyals ($219 billion).

“This is not a surprise level of spending the Kingdom is committing to, this is all relative – to maintain 2012’s pace of growth, given that the government has been on an expansionary stance since 2011. This will help the Kingdom to cushion any blow coming from global weakness, ” Said Hirsh, head of economics at Maplecroft, a UK-based risk-advisory company, told Al Arabiya English.

But while the continued big spending trend is expected to take place at “similar high levels over the next three years, the growth rate of this spending will slow,” Hirsh added.

“The biggest share of spending for the time being will be in infrastructure and housing, as well as maintaining growth in public sector salaries and social benefits,” Hirsh said.

Some 25 percent of the budgeted expenditure is earmarked for education, including building new schools, vocational training and scholarships abroad, according to a breakdown provided by the ministry.

Roads and transport are allocated 65 billion riyals ($17.3 billion), while water, agriculture and industry are to get 57 billion riyals ($15.2 billion).

The enlarged budget is in line with the Kingdom’s high expenditure plans since the global financial crisis unraveled in 2008. The aim is to push the world’s biggest oil exporter – which has been strengthened by record oil prices - to avoid recession against a fiscally weaker global backdrop.

“Their position has been; for as long as the global situation remains uncertain then government spending is a necessary aspect of ensuring economic continuity while supporting the structural transformation of the economy through capital spending,” Jarmo Kotilaine, a Bahrain-based economist, told the Financial Times on Wednesday.

“Saudi Arabia has the luxury to spend and they can tap into the enormous reserve if they need to,” Kotilaine added.

Oil prices

Although the Saudi government did not reveal their expectations for oil prices, the newspaper cited an estimate by Riyadh-based Jadwa Investment, saying it had set production at 9.6m barrels a day at $66 a barrel, while last year’s price average was about $111.5 a barrel, the report noted.

In 2012 the country’s $727 billion economy expanded by 6.8 per cent, including 7.2 per cent for the non-oil industries, the finance ministry said.

Finance Minister Ibrahim al-Assaf tagged 2012’s rise in inflation at 2.9 percent as compared with the previous year, and 4.5 percent as compared with the benchmark year of 1999, according to the SPA news agency.

He told ministers that real growth in the Kingdom’s gross domestic product (GDP) is expected to be 6.8 percent in 2012, with 5.5 percent growth in the oil sector and 7.2 percent in other sectors.

In 2011, the Kingdom registered an impressive budget surplus of 306 billion riyals ($81.6 billion), as revenues turned out to be double the conservative forecast.

Revenues that year hit 1.110 trillion riyals ($296 billion) compared to a forecast of 540 billion riyals, while expenditure hit 804 billion riyals ($214.4 billion), after it was planned at 580 billion riyals.

But Hirsh also warned against the Kingdom’s dependence on oil-fuelled government spending.

“A drawback essentially will be that the high expenditure plan is still funded through oil revenues, putting the Kingdom at exposure to adverse moves in global commodity markets,” he said.

“But this will only effect the Kingdom in the medium to long term given its huge foreign currency reserves and savings over the past decade,” the economist added.