Saudi fiscal surplus to widen in 2012

Saudi Arabia’s fiscal surplus could rocket by more than seven times in 2012 as revenue will likely be far higher than the level projected by the world’s oil powerhouse, according to a key Saudi investment firm.

The Gulf Kingdom, the largest Arab economy, forecast a budget surplus of SR12 billion when it announced last week its highest ever expenditure of SR690 billion for 2012 and projected revenue at SR702 billion.

“We forecast a budget surplus of SR91 billion in 2012, equivalent to 4.5 percent of expected GDP. This is because we expect the oil price to be higher than that used in the budget and therefore that oil revenues will exceed the budgeted total,” the Riyadh-based Jadwa Investments said in a study on the country’s budget sent to Emirates24/7.

It expected total oil revenues to the budget at SR744 billion and the non-hydrocarbon income at SR80 billion.

Spending will be above the budgeted level, the report said, adding that over the last ten years, actual government expenditure has averaged 24 percent higher than the budgeted amount.

“The extent of overspending was much greater than this in 2011, at 39 percent…this was due to the spending commitments contained in a series of Royal Decrees announced in February and March,” the report said.

“Given the one-time nature of these Decrees and our view that both budgeted revenues and spending projections are less conservative than usual, we expect that the excess spending will be more in line with the historical trend and forecast total expenditure of SR733 billion.”

Jadwa said the oil price level necessary for revenues to balance its forecast level of government spending, known as the breakeven price, is $74 per barrel for Saudi export crude (equivalent to around $70 per barrel for WTI and $78 per barrel for Brent).

“This is based on our production assumption of 8.8 million barrels per day and domestic consumption of 2.4 million barrels per day.”

The report projected the price of Saudi crude to average around $92 in 2012, (equivalent to $95 for Brent and $86 for WTI).

It said that with Libyan production likely to return to very close to pre-conflict levels by the end of 2012 and output from Iraq steadily rising, Saudi oil production will likely fall by 4.4 percent to 8.8 million bpd next year from more than nine million bpd in 2011.

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