Saudi budget to revert to surplus

Strong oil prices will allow Saudi Arabia to bask again in a budget surplus this year despite a sharp increase in public expenditure as part of the country’s counter-crisis fiscal measures, according to local analysts.

One scenario projected the surplus at around SR44 billion but another more optimistic forecast put it at as high as SR164 billion.

The surplus is against a budgeted deficit of SR70 billion assumed by the world’s dominant oil power in its 2010 budget and compares with an actual shortfall of nearly SR87 billion in 2009, its first in seven years.

Estimates by Fahd bin Jumma, a member of the Chicago-based International Association for Energy Economics, showed Saudi Arabia’s revenue would swell to nearly SR759 billion this year, far higher than budgeted revenue of SR470 billion. He said the surge meant a theoretical surplus of SR219 billion in case Riyadh is sticking to planned spending of SR540 billion.

“I think the country’s actual expenditure will be much higher this year as was the case last year…this means the actual surplus could be around SR164 billion against a budgeted deficit of SR70 billion,” he told Saudi newspapers.

But in other less optimistic forecasts, a key Saudi investment institution said the surplus could be around SR44 billion this year.

The Riyadh-based Jadwa Investments also expected a modest surplus in the Kingdom’s budgets in 2011 and 2012, projecting them at SR37 billion and SR56 billion respectively, far below the record high surplus of SR580 billion in 2008.

Jadwa based in its assumptions for this year on total revenue of about SR648 billion and spending of nearly SR604 billion.

Although its earnings projections are much below those by Jumma, they are still nearly SR178 billion above budgeted revenues.

Jadwa said the surge in revenue was a result of an improvement in oil prices, which are expected to average around $75, more than $20 above the price assumed by the Kingdom in its 2010 budget. Saudi Arabia’s oil production is also expected to grow to around 8.2 million bpd this year from 8.1 million bpd in 2009.

In 2009, Saudi Arabia, which controls over a fifth of the world’s extractable oil deposits, suffered from its first budget deficit in seven years in 2009 as a result of lower oil prices and a sharp rise in actual expenditure.

But unlike in the previous decade, the Kingdom has not resorted to borrowing to finance the shortfall as it has accumulated massive foreign assets during the oil boom of the past eight years. The assets, controlled by the Saudi Arabian Monetary Agency, central bank, leaped to one of their highest levels of around SR1,663 billion at the end of October, nearly SR93 billion above their level of SR1,570 billion at the end of 2009 and almost double the 2006 assets.

Experts said the sharp rise in the assets through 2010 meant Saudi Arabia is earning more than it is spending, an indication the deficit has been wiped out.

According to estimates, Saudi Arabia’s oil export earnings shot up to nearly $184 billion in the first 11 months of 2010 from $139 billion in the same period of 2009.

Another scenario by a key bank in the Kingdom showed the surplus in the Saudi budget this year could be around SR41 billion.

In a study issued last week, Banque Saudi Fransi forecast the country’s total revenue at nearly SR658 billion compared with about SR510 billion in 2009.

“Whatever scenario may evolve in the coming months globally, this substantial cushion will shield Saudi Arabia’s economy from contagion and enable the state to continue spending heavily to push forward its $384 billion five-year development plan,” BSF chief economist John Sfakianakis said.

Besides fiscal surpluses, strong oil prices allowed Saudi Arabia to slash its public debt after surpassing its GDP in late 1990s. It dipped to nearly 65 per cent in 2005 and continued its decline to reach just 13.3 per cent in 2008. It edged up to around 16 per cent in 2009 and is expected to drop again to 13.5 per cent of GDP this year, Jadwa’s estimates showed.

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