Public spending by Saudi Arabia could leap by more than 41 per cent to an all time high in 2011 as the world’s oil superpower will be tempted by soaring crude prices and an increase in its production, according to a local study.
But the increase will be more than offset by the surge in oil prices and output as public revenue could swell by nearly 70 per cent above budgeted earnings this year, said the study by the Riyadh-based Jadwa Investments.
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 forecast actual Saudi government expenditure to soar to SR821 billion through 2011, around 41.5 per cent above budgeted spending.
It projected revenue at SR918 billion, 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 expected a fiscal surplus of SR98 billion in 2011 compared with a budgeted shortfall of SR40 billion.
Saudi Arabia recorded a surplus of around SR109 billion in 2010 following a deficit of SR87 billion in 2009 and a record high surplus of SR581 billion in 2008.
Jadwa said the surge in spending this year, the highest expenditure growth in many years, would be a result of a massive investment programme involving spending of nearly SR500 billion over the next years in line with financial initiatives for citizens announced by King Abdullah over the past three months.
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 oil production to rise to 8.8 million bpd this year from 8.2 million bpd in 2010 while the price of Saudi crude is expected to surge to nearly $95.8 a barrel from $77.7 in the same period.
It said higher prices and production would push up the Kingdom’s oil sector by 8.9 per cent and this will boost GDP growth by nearly 5.6 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 SR1,806.7 billion ($482 billion) at the end of April, total foreign assets controlled by the Saudi Arabian Monetary Agency (SAMA), the country’s central bank, soared to SR1,856.2 billion ($495 billion) at the end of May.
The increase meant that the foreign assets swelled by a whopping SR140 billion in the first five months of 2011, the biggest rise in such a period of time.
The surge was a result of a sharp rise in oil prices, which averaged nearly $109 in May, nearly $50 above Saudi Arabia’s budget forecasts. The country’s oil production has also risen to close to nine million bpd from around 8.3 million bpd through 2010 as the Kingdom sought to offset disruption of supply from Libya.