Government sets expansionist 2006 budget

16 December 2005
The Finance Ministry announced on 13 December the 2006 budget, forecasting a 39 per cent increase in revenues to SR 390,000 million ($104,000 million) and a 19.6 per cent rise in spending to SR 335,000 million ($89,333 million). Riyadh also released preliminary estimates of 2005 economic and fiscal performance, putting real gross domestic product (GDP) growth at 6.5 per cent and the budget surplus at SR 214,000 million ($57,707 million).

Much of the 2006 expenditure increase will go into social services. The budget allocation for education is increased by 24.5 per cent to SR 87,300 million ($23,280 million) and spending on health and social affairs is budgeted to rise by 28 per cent to SR 31,000 million ($8,267 million).

Total capital expenditure is forecast to jump to SR 126,000 million ($33,600 million).

Riyadh did not say what average oil price it based its revenue projections on. 'Calculating backwards from revenues, the budget appears to be based on an oil price of about $31 a barrel,' says Khan Zahid, chief economist and vice-president of Riyad Bank. 'The government is always conservative, but this is extremely conservative given that OPEC appears likely to defend a price of at least $40 a barrel. However, the budget is still very big in both revenue and expenditure terms.'

The estimate of the 2005 budget surplus is the biggest ever. 'The 'best' news in the budget is that the biggest amount of the 2005 surplus - SR 139,000 million ($37,067 million) or 65 per cent - will be used this year to retire government debt,' says Zahid.

Real GDP growth in 2005 benefited from a 6.7 per cent rise in private sector activity, the ministry said. The non-oil industrial sector expanded by 8.4 per cent, the construction sector by 6 per cent and the transport and communications sector by 9.9 per cent. The current account surplus rose by 68 per cent to SR 326,000 million ($86,933 million).

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