Saudi to record higher fiscal surplus this year

A surge in oil prices and production will sharply widen Saudi Arabia’s fiscal surplus in 2011 despite an expected increase of more than 40 per cent in the Gulf kingdom’s actual spending, according to a local study.

The Riyadh-based Jadwa Investment said it had revised up its previous estimates for Saudi Arabia’s budget surplus from SR127 billion ($33.8bn) to SR158bn as a result of higher revenue.The projected surplus this year will be nearly 45 per cent higher than the SR109bn recorded in 2010 and in sharp contrast with the SR87bn deficit in 2009, when oil prices were relatively low.

Jadwa maintained its previous forecast that the Kingdom’s public expenditure would leap by more than 41 per cent to SR821 billion this year mainly because of government commitment under a massive financial handout announced by King Abdullah early this year, involving spending of more than SR500bn. 

As for revenue, Jadwa forecast it at SR979bn against previous projections of SR948bn.This means that the increase in expenditure will be more than offset by strong crude prices and an increase in the kingdom’s oil production to offset a disruption of supply from conflict-battered Libya.Saudi Arabia, the largest Arab economy which controls over a fifth of the world’s recoverable crude deposits, had planned to spend SR580bn in 2010, assuming revenue at SR540bn, with a deficit of SR40bn. 

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.It said actual public earnings could be nearly 70 per cent above the budgeted revenue and the second highest level after the peak income of around SR1,101bn 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 showed high oil export earnings would cut the kingdom’s domestic debt to around SR160 billion at the end of 2011 from SR167bn at the end of 2010. The debt was as high as SR614bn at the end of 2004. It forecast Saudi Arabia’s oil production to rise to 9.2 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 14.2 per cent and this will boost GDP growth by nearly 6.9 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 3.8 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 SR1,705bn at the end of 2010, total foreign assets controlled by the Saudi Arabian Monetary Agency (Sama), the country’s central bank, soared to SR1,926bn at the end of August.

The increase meant that the foreign assets swelled by nearly 13 per cent in the first eight 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 $110 in the first eight months. The country’s oil production has also surpassed nine million bpd from around 8.3 million bpd through 2010.    

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