Saudi assets to gain $98bn in 2011: report

Strong oil prices will ally with a sharp rise in Saudi Arabia’s crude output to expand its foreign assets by nearly $98 billion through 2011 although the world’s dominant oil exporter is spending much higher than it had projected this year, according to a key Western financial institution.

From around $445 billion at the end of 2010, the Gulf Kingdom’s foreign assets are expected to hit an all time high of nearly $543 billion at the end of 2011 and continue their rise to reach $591 billion at the end of 2012, the Washington-based Institute for International Finance (IIF) said in its latest report.

The assets, controlled by the Saudi Arabian Monetary Agency (SAMA), have already swelled by nearly $80 billion in the first nine months of 2011 as a result of a surge in crude prices and a decision by the Kingdom to raise its oil output to more than nine million bpd to offset disruption of Libya’s supplies.

IIF said it expected oil prices to average nearly $104 this year while Saudi Arabia’s crude production could soar by more than one million barrels per day to nearly 9.3 million bpd in 2011 from an average 8.2 million bpd in 2010.

It said the rise in both output and prices would largely widen Saudi Arabia’s current account and fiscal surpluses despite an expected surge in spending.

It noted that the government’s additional spending measures, introduced in March of this year, are being implemented as planned, adding that it expects public spending to increase by $44 billion in 2011, an increase of nearly 25 per cent over the actual spending of the previous year.

This will raise total spending to 92 per cent of non-hydrocarbon GDP in 2011, up from 81 per cent in 2010, the report said.

It cited government figures which showed the largest component of the supplementary commitments of $120 billion is allocated to the construction of 500,000 new housing units estimated to cost $67 billion. The houses, which will be constructed over several years, were part of a massive public financial benefits package ordered by King Abdullah early this year for citizens.

“A significant portion of the increase in spending this year is likely to be permanent in nature and difficult to reverse in the coming years. In this regard, we expect total spending to remain above 85 per cent of non-hydrocarbon GDP for the next few years,” said IIF, which groups hundreds of major banks.

Its figures showed the external current account surplus is expected to register a surplus of $132 billion, equivalent to 23 per cent of GDP in 2011, owing to a 43 per cent increase in oil export revenues to $310 billion.

The report said this would be a result of both price and volume effects and to strong growth in exports of petrochemicals. Imports are forecast to increase by 26per cent, rising from $97 billion in 2010 to $122 billion in 2011.

The fiscal surplus will also widen from 5.4 per cent in 2010 to 10.4 per cent of GDP in 2011. “The additional revenues from higher oil prices and the export of Saudi crude in volume terms will far exceed the sharp increase in government spending (a 25% increase over the previous year).”

Since the end of 2010, SAMA’s foreign assets have gained a whopping S296 billion ($80 billion) as a result of higher oil prices and production.

Saudi Arabia’s foreign assets have steadily grown in most of the past 10 years because of strong crude prices, gaining SR135 billion ($36 billion) through 2010.

They recorded one of their largest increases of around SR513 billion ($137 billion) during 2008, when oil prices climbed to their highest annual average of nearly $95 a barrel. But a sharp fall in crude prices depressed them by SR139 billion ($37 billion) in 2009 to widen the actual budget shortfall to nearly SR87 billion following a record high surplus of SR580 billion in the previous year.

In 2010, the Saudi budget reverted into a surplus of SR109 billion after oil prices increased by at least $15 a barrel. For 2011, Saudi Arabia announced another record high budget of SR580 billion for 2011, with a deficit of SR40 billion.

But analysts believe the fiscal shortfall will again revert into a large surplus at the end of the year on the grounds the oil price assumed by Riyadh of nearly $60 a barrel will be far below the expected actual price. 

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