High government spending justified

22 May 2014

Riyadh’s budgeted spending in 2014 reaches new highs and will address the need for social infrastructure

The report from the Washington-based IMF stating that Saudi Arabia’s economy will grow by 4 per cent over the next two years will have come as no surprise to economists in the kingdom.

When Riyadh released its budget for 2014, it was the first since 2005 to be balanced and not producing a surplus. The SR855bn ($228bn) planned spending is the most ever budgeted for in one year by the government.

This fiscal stimulus is aimed at kick-starting the economy and social spending is top of the agenda. Huge investment is planned in education, health and social infrastructure, and this is expected to drive non-oil growth, which reached 5.5 per cent in 2013.

While the IMF warns that increased government spending coupled with lower revenues cannot be sustained indefinitely, it does concede that “substantial fiscal buffers” are in place to protect the kingdom’s economy. 

The scale of investment required for much of Saudi Arabia’s infrastructure is vast and would be usually tackled over a far longer timescale than is being attempted. The sheer amount of work will put a strain on both material and human resources, which is likely to push project costs higher. 

Riyadh is committed to the task of improving the living standards of Saudi nationals, and this means investing in housing and education is essential. There is no point spending tens of billions of dollars on huge petrochemicals plants and aluminium complexes if young people do not have the requisite educational qualifications to work in them.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications