Strong oil prices in 2011 are expected to turn Saudi Arabia’s budgeted fiscal deficit into a surplus and this will allow the world’s oil superpower to trim its public debt by a further SR22 billion, according to a Saudi bank.
The largest Arab economy slashed the public debt by around SR58 billion ($15.6 billion) to SR167 billion ($45.2 billion) at the end of 2011 after more than expected oil prices pushed the Gulf Kingdom’s fiscal balance into a surplus, Banque Saudi Fransi said in a study.
Expectations of higher oil prices through 2011 will likely boost Riyadh’s crude export earnings to nearly 212 billion from around $203 billion in 2010 to reach their second highest level since 2008, when they climbed to an all time high of around $281 billion after crude prices peaked at an average $95.
Although the Saudi government is expected again to overshoot budgeted expenditure, the SR40 billion deficit could turn into an actual surplus of nearly SR93 billion ($25.1 billion), BSF said.
“The public debt is expected to fall further to around SR145 billion at the end of 2011 from nearly SR167 billion at the end of 2010,” said John Sfakiankis, chief economist at BSF, a key Saudi bank.
He said expectations oil prices would remain firm through 2010 would again depress the domestic debt to around SR137 billion while the budget could record another surplus of nearly SR80.3 billion.
Besides slashing debt, Saudi Arabia will also use part of the surplus funds to bolster its already massive foreign assets, which have more than doubled over the past seven years because of high oil prices and output.
From around $405 billion at the end of 2009, the Kingdom’s net foreign assets soared to nearly $440 billion at the end of 2010 and are forecast to swell to about $470 billion this year and $499 billion at the end of 2012.
Before the latest oil boom of 2003-2008, Saudi Arabia had suffered from massive budget shortfalls and soaring public debt, which approached the size of its GDP in 1999. The debt, caused by heavy borrowing to finance budget gaps, was as high as SR660 billion in 2003 before it started its rapid decline in the following years to reach around SR266 billion in 2007. It was reduced to about SR235 billion in 2008 and was cut further in the following years.
The net foreign assets of the Saudi Arabian Monetary Agency (SAMA), the country’s central bank, were as low as $42 billion in 2002. In 2005, they more than tripled to $150.3 billion and continued their surge to reach nearly $300 billion in 2007 before they rocketed to $438 billion in 2008, their highest annual increase. The net assets slipped to $405 billion in 2009 before they resumed their climb in the following year. The decline in 2009 was a result of lower oil prices which widened Riyadh’s fiscal gap to around SR86.6 billion.
BSF projected total government revenue to soar to around SR769 billion this year against a budgeted income of SR540 billion. It also forecast spending to rise to SR676 billion above the budgeted expenditure of SR580 billion, turning a SR40 billion budgeted gap into a surplus of around 5.2 per cent of GDP.
Its figures on Saudi Arabia’s economy showed real GDP would pick up from 3.8 per cent in 2010 to around 4.2 per cent in 2011 and 4.4 per cent in 2012.
It estimated non-oil private sector growth at 4.2 per cent this year and 4.5 per cent in 2013 while government sector growth was put at 5.3 and 4.7 per cent respectively. The report expected the oil sector to grow by 5.3 and 4.7 per cent.
It said the economic gain would boost the Kingdom’s GDP per capita from around $16,039 in 2010 to $17,279 in 2011 and $18,286 in 2012.
The per capita is projected to increase although the country’s population is forecast to grow from around 27.1 million in 2010 to 27.7 million in 2011 and around 28.4 million in 2012, the report said.
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