Saudi Arabia’s fiscal surplus could rocket by more than 17 times in 2012 due to strong crude prices although the world’s oil powerhouse is expected again to overshoot planned spending, a key Saudi bank has said.
Announcing its 2012 budget just before the end of last year, the largest Arab economy projected record high expenditure of SR690 billion and revenue of SR702 billion, creating a tiny surplus of SR12 billion, less than one per cent of its expected GDP for that year.
The Gulf Kingdom is believed to have based its budget on an average oil price of just above $60 but actual crude prices could be as high as $97, according to forecasts by the Saudi American Bank Group (SAMBA).
With its crude output staying above nine million barrels per day, the country’s actual revenue could leap by nearly 40 per cent to SR979 billion while spending could swell by just around 11 per cent to SR768 billion.
This means the state budget balance could be as high as SR211 billion, more than 17 times the projected surplus of SR12 billion. But the expected surplus this year remains far below the SR306 billion recorded in 2011, when oil prices climbed to their highest ever average of more than $100.
“Our fiscal projection for 2012 is based on an average Saudi oil price of $97/barrel (slightly lower than in 2011) and oil output of just over 9 million b/d (again, fractionally lower than in 2011),” SAMBA said in its monthly report.
The report showed non-oil income is likely to dip somewhat as slightly weaker import spending impacts the government’s customs take.
Overall revenue is likely to be some SR980 billion, 12 percent lower than in 2011, but comfortably ahead of the 2010 revenue figure of SR742 billion.
“We think overall spending will follow revenue and be slightly lower than in 2011. The public sector spending surge in 2011 was substantial, and we think the economy would find it difficult to accommodate a further increase in 2012, and so we see overall spending of around SR768 billion, some 5 percent lower than in 2011,” the report said.
“Nevertheless, spending on public sector wages is likely to show a further nominal increase given the tense MENA regional political environment.”
SAMBA said the forecast decline in the actual fiscal surplus this year would depress its ratio to 9.8 per cent of GDP from 14.1 per cent in 2011 but it remains way above the projected balance’s ratio of just 0.5 per cent.
It said the “break even” oil price—based on the government receiving 80 percent of oil export revenue from Saudi Aramco—is $74 for Arab Light. Nevertheless, even if this was not achieved, the government has substantial domestic savings that it can use to finance any shortfall, the report said, referring to the nearly SR2,000 billion held in overseas bank deposits and securities by the Saudi Arabian Monetary Agency (SAMA).
Turning to 2013, SAMBA expected revenue to stay flat, with a small increase in oil production being offset by a slight decline in prices. Spending is expected to tick up again, and this will mean a smaller—but still comfortable—surplus of SR169 billion, or 7.5 percent of GDP, It said.
“Despite the ostensible health of the public finances, there are structural rigidities that warrant attention. These are best captured by the non-oil fiscal deficit, which has surged from around 20 percent of non-oil GDP in 2002 to an estimated 80 percent this year,” the report said.
“The steady rise of the non-oil fiscal deficit reflects the build-up of spending commitments, particularly recurrent commitments stemming from public sector pay awards and fuel subsidies, over time.”
SAMBA noted that during periods of high oil prices it is easy for these current spending commitments to accrete.
“However, they are politically difficult to reverse and thus leave the government vulnerable to a sharp downturn in oil prices. We are certainly not expecting any such downturn, but the vulnerability persists.”