Saudi Arabia will record a lower than expected deficit in its budget this year despite an increase in actual expenditure and relatively low crude prices, the Kingdom's largest bank said yesterday.
Announcing its 2009 budget in late 2008, Riyadh projected a shortfall of SR65 billion (Dh64.3bn) but the actual deficit could slip to SR56bn by the end of the year, the National Commercial Bank (NCB) said.
"We expect the actual budget deficit to be around SR56bn this year as we are projecting the average price of Saudi crude to be in the range of $47 a barrel," said Perihan Al Husseini, Senior economist at NCB.
Speaking to Emirates Business by telephone from the Red Sea port of Jeddah, Husseini said NCB is forecasting an increase in Saudi Arabia's actual spending to around SR521bn, nearly 10 per cent above the projected expenditure of SR475bn.
But actual revenues are also expected to swell to around SR465bn because of higher non-oil exports and a slight rise in crude prices.
"The price of Saudi crude this year could be higher than has been assumed but do not forget the Kingdom's oil production will be sharply lower this year because of decisions by Opec members to reduce supplies," Al Husseini said.
She estimated Saudi Arabia's oil production at 8.1 million barrels per day in 2009, below its average output of 9.2 million bpd in 2008.
The deficit this year will be Saudi Arabia's first budget shortfall since 2002, when it stood at around $5bn, according to official figures.
In the following years, strong oil prices turned the gap into massive surpluses and allowed the world's oil basin to largely boost its overseas assets to more than SR1.7 trillion at the end of 2008 after dipping to below SR200bn in late 1990s because of a sharp fall in oil prices and the Kingdom's production.
The surplus hit an all-time high of SR590bn in 2008 after oil prices peaked at nearly $95, pushing Saudi Arabia's revenues to their highest ever level of SR1.1trn, including about SR990 billion in oil export earnings.
The budget recorded that surplus although Riyadh again overshot expenditure by around 12 per cent to SR510bn.
"The expected deficit this year is not that big… it will be only around four to five per cent of the projected gross domestic product in 2009," Al Husseini said.
"Our projections however could change depending on oil prices… we know that there has been an improvement in prices over the past couple of weeks but don't forget prices averaged around d $40 in the first three months of 2009… if the price increase is sustained, then there will be a big improvement in the Saudi budget position… all this depends on the price movement in the next months." Saudi Arabia, which controls a quarter of the world's extractable oil resources, approved its highest budget in 2009 and sharply boosted capital spending in a bid to cushion the impact of the global financial turmoil.
In contrast with previous years, the Kingdom has been withdrawing from its assets abroad to finance additional spending instead of resorting to domestic borrowing. Bankers said Riyadh is reluctant to borrow again through issuing bonds because of the local liquidity shortage.
Heavy borrowing during the 1990s because of persistent budget deficits pushed the Kingdom's public debt above its GDP before diving to below 15 per cent at the end of 2008.
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