Saudi budget is 'underestimated': bank

The 2016 budget released by Saudi Arabia on Monday, involving one of its largest deficits, is underestimated, the Gulf kingdom’s largest bank said on Tuesday.

Saudi Arabia, the world’s dominant oil exporter, projected 2016 spending at SR840 billion (Dh840 billion) and revenue at SR513.8 billion (Dh513.8 billion), creating a fiscal deficit of SR326.2 billion (Dh326.2 billion).

The deficit is in contrast with previous years, when the Kingdom recorded massive fiscal surpluses during the oil boom between 2000 and 2013. The surpluses allowed Riyadh to build up its foreign assets, which topped $700 billion at the end of 2014.

In a study sent to Emirates 24/7, National Commercial Bank (NCB) said the 2016 budget showed that the Saudi government is adamant in supporting the economy by adopting a fiscal adjustment strategy centred around efficiency and viability.

It said the 2016 budget continues to reflect the government's focus on long-term sustainable development that requires investment in infrastructure, education, health care, and social and economic development projects.

“Based on previous years, we believe that the budget figures are underestimated, and the government will overrun the budget on the back of momentum spending on ongoing mega projects and rising geopolitical challenges,” NCB said.

It said that while the government did not provide oil price and production level assumptions, both revenues and expenditures are 'underestimated.'

Based on announced budgetary revenues, government assumed next year’s oil prices to average $35/ bbl, the study said.

“With our forecast of $50/bbl for the Arabian light spot price average and a 10.2 MMBD for oil production average in 2016, we project revenues and expenditures at SR629 billion and SR897 billion, respectively. This would lead to a budget deficit of SR268.0 billion, or 10.4 per cent of estimated GDP in 2016,” it said.