Saudi fiscal surplus to surge in 2011

A surge in oil prices and production will turn a projected Saudi fiscal deficit into a large surplus despite an expected increase of more than 40 per cent in the Gulf kingdom’s actual spending, according to a local study.

The Riyadh-based Jadwa Investment said it had massively revised up its previous estimates for Saudi Arabia’s budget surplus from SR127 billion ($33.8 billion) to SR226 billion ($60 billion) as a result of higher revenue.

The projected surplus this year will be more than double the SR109 billion ($29 billion) balance recorded in 2010 and in sharp contrast with the SR87 billion ($23 billion) deficit in 2009, when oil prices were relatively low.

Jadwa expected the Kingdom’s actual public expenditure to leap by nearly 40 per cent to SR809 billion this year mainly because of government commitment under a massive financial handout announced by King Abdullah early this year, involving spending of more than SR500 billion.

As for revenue, Jadwa forecast it at SR1,035 billion ($276 billion) against previous projections of SR948 billion ($252.8 billion).

This means that the increase in expenditure will be more than offset by strong crude prices and an increase in the Kingdom’s oil production to offset a disruption of supply from conflict-battered Libya.

Saudi Arabia, the largest Arab economy which controls over a fifth of the world’s recoverable crude deposits, had planned to spend SR580 billion in 2010, assuming revenue at SR540 billion, with a deficit of SR40 billion.

But the country based its budget on an average oil price of around $60 a barrel while prices are projected to average more than $30 above that level.

Jadwa said actual earnings could be nearly 70 per cent above the budgeted revenue and the second highest level after the peak income of around SR1,101 billion in 2008, when oil prices hit their highest average of $95 a barrel and Saudi Arabia pumped as much oil as 9.2 million bpd, one of its highest levels.

The report showed high oil export earnings would cut the Kingdom’s domestic debt to around SR160 billion at the end of 2011 from SR167 billion at the end of 2010. The debt was as high as SR614 billion at the end of 2004.

It forecast Saudi Arabia’s average oil production to soar to 9.2 million bpd this year from 8.2 million bpd in 2010 while the price of Saudi crude is expected to swell to nearly $99.3 a barrel from $77.7 in the same period.

It showed higher prices and output would push up the Kingdom’s oil sector by 14.4 per cent and this will boost GDP growth by nearly 7.1 per cent in 2011, far higher than the 3.8 per cent growth achieved in 2010. The report forecast growth in the government sector at five per cent and in the private sector at 4.2 per cent.

Strong oil prices, mainly a result of current unrest in the Middle East and North Africa, have already boosted Saudi Arabia’s foreign assets to their highest ever level, indicating the Kingdom is earning more than spending.

From SR1,705 billion ($455 billion) at the end of 2010, total foreign assets controlled by the Saudi Arabian Monetary Agency (SAMA), the country’s central bank, soared above Srtwo trillion ($533 billion) at the end of September for the first time since the country began pumping crude 70 years ago.

The increase meant that the foreign assets swelled by nearly 14 per cent in the first nine months of 2011, the biggest rise in such a period of time.

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