Saudi may cut capital spending

Current expenditure is set to rise despite expected fall in oil revenue

Saudi Arabia may opt to cut domestic investment and keep current spending high in the next three years to avert any political turmoil despite an expected decline in its oil export earnings, according to a key bank in the Gulf Kingdom.

A steady growth in the country’s oil revenue over the past decade is projected to be reversed by lower crude prices in the coming three years and this could prompt the world’s dominant oil exporter to curb spiraling public expenditure, the Saudi American Bank Group (SAMBA) said in a study on the Kingdom’s 2013 budget.

It noted that actual spending in 2012 grew by 3.2 per cent compared with a whopping 26 per cent in 2011. SAMBA said it believes the main increase in spending in 2012 was on the current side, including the extension of unemployment benefit to Saudis, adding that project spending was flat in nominal terms and declined in real terms.

“We think this pattern will persist for the next three years. Our oil price and production assumptions suggest that oil revenue will decline each year in 2013-2015. This is a fairly major departure from the past decade, which saw revenues grow by an annual average of 25 percent,” the study said.

It said the Saudi government might choose to keep spending high and run deficits, which could be financed from existing savings, which exceeded $700 billion at the end of 2012 because of a sharp rise in oil revenue.

“Certainly, with political considerations to the fore, the authorities are unlikely to cut outlays on public sector salaries or subsidies,”
it said.

“But we think that the government will attempt to fit spending to the new realities and rein in capital investment…… thus, reasonably firm current spending growth will be offset by weaker investment outlays.
This will be enough to keep the fiscal position (more or less) in surplus.”

Announcing its largest ever budget just before the end of 2012, Saudi Arabia projected revenue at SR829 billion in 2013 and expenditure at a record high of SR820 billion, with a budgeted surplus of SRnine billion.

But according to a bank study, the actual surplus could end the year nearly 30 times higher because of an expected surge in oil export earnings as a result of high prices and an increase in the Gulf country’s output.

The government is believed to have assumed an oil price of $70 for the budget but prices could average as high as $110 this year, National Commercial Bank (NCB) said.

“Based on our forecast of oil prices at $110 a barrel, we project a fiscal surplus of SR277 billion or 9.5 per cent of GDP,” NCB said.

“ This will result in oil revenues of SR1,043.5 billion, representing a decrease of 8.5 per cent compared to actual oil revenues in 2012, which also takes into account a 3.7 per cent decline in export volume.
Non -oil revenues are also expected to reach SR104 billion, 3.9 per cent above actual level in 2012.”

Saudi Arabia, pumping just less than 10 million bpd in 2012, had forecast a small deficit last year but at the end of the year, it turned into a massive surplus of SR387 billion, the Kingdom’s second highest fiscal surplus after the record 2008 balance of SR581 billion.

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