Saudi income set to surge in 2010

Strong crude prices will sharply boost Saudi Arabia’s income in 2010 and allow it to revert into a fiscal surplus after suffering from a deficit in 2009 because of lower oil prices and high spending, local studies showed Thursday.

Saudi Arabia, the largest Arab economy and the world’s top oil exporter, had assumed a conservative price of around $45 for its crude in the 2010 budget but prices are projected to average nearly $70 a barrel, they showed.

“The fiscal and balance of payments’ outlooks are both comfortable. Incremental gains in oil output coupled with stronger output of high-value condensates will keep export earnings growth robust,” the Saudi American Bank (SAMBA) said.

“Oil revenue will rise in line with exports and non-oil earnings should be supported by increasing private sector import activity. Lagged effects of the capital spending surge in 2009 will see spending growth increase sharply this year, but the rate of growth should ease in 2011-2012. Overall, we expect the fiscal position to remain in surplus.”

But SAMBA noted that even if the fiscal balance turns negative, it would not constitute a problem to Saudi Arabia given the sharp increase in its foreign assets over the past three years because of strong oil prices.

“In any event, the government’s liquid assets are such that the precise fiscal outturn is of little consequence in the short- to medium-term.”

SAMBA gave no forecasts on Saudi Arabia’s actual revenues this year but another Saudi institution, Jadwa Investments, projected them at about SR626 billion (Dh619 billion), far higher than the budgeted income of SR470 billion.

Announcing its 2010 budget just before the end of 2009, Riyadh said it planned to spend a record high SR540 billion, leaving a deficit of SR70 billion.

Although the Kingdom’s oil production could be slightly higher than the budget target, the surge in crude prices by around 55 per cent above their assumed level will sharply boost the actual revenues and allow it to record a surplus.

The Riyadh-based Jadwa predicted the government would again overshoot planned spending to around SR554 billion (Dh549 billion), creating a surplus of nearly SR72 billion (Dh71 billion) against a shortfall of SR45 billion in 2009.

The study also projected even a higher surplus of SR104 billion in 2011 due to an expected rise in revenue as a result of higher prices of an average $74 and an increase in the Kingdom’s oil output from 8.3 million to 8.5 million bpd.

The forecast positive balance in 2010-2011 remains a fraction of the massive budget surplus of SR581 billion (Dh575 billion) recorded in 2008, the largest fiscal surplus in the country’s history. It was a result of a sharp rise in revenue which hit an all time high of SR1.1 trillion (Dh1.9 trillion).

Jadwa said the surge in oil prices would also give a shot in the arm to the Saudi economy and boost confidence that was hit by the crisis.
It projected real growth at around 4.2 per cent in 2010 and 4.4 per cent in 2011.

Strong oil prices largely boosted Saudi Arabia’s foreign assets over the past few years after a sharp decline in late 1990s because of persistent fiscal gaps.

From SR619 billion at the end of 2006, the assets controlled by the Saudi Arabian Monetary Agency (SAMA), the Kingdom’s central bank, jumped to nearly SR1,709 billion at the end of 2008 before receding to SR1,570 billion at the end of 2009.

They rebounded to about SR1,611 billion at the end of May 2010.

“Despite a sharp volatility in oil prices for much of the month of May, SAMA’s net foreign assets resumed month-on-month growth at 0.5 per cent, having contracted for the first time in seven months in April,” Banque Saudi Fransi said.

“Its foreign assets grew at an annual rate of 5.2 per cent, the fastest expansion in a year…... SAMA has been investing its surplus funds in foreign securities, with holdings of these up SR83.56 billion year to date….by contrast, SAMA has been drawing on its deposits with banks abroad, which are down SR44.97 billion so far this year, standing in May at SR290.71 billion, a dip of 1.4 per cent from April.

While public spending will continue to remain high, we still expect Saudi Arabia to post a fiscal surplus in 2010 amounting to three per cent of GDP.”

Follow Emirates 24|7 on Google News.