Saudi Arabia increases spending to boost recovery

19 December 2010

Budget expands, but Riyadh plans to control overspending

Saudi Arabia has announced a 7.4 per cent increase in expenditure for 2011 to SR580bn ($144bn), with a projected deficit of SR40bn, as Riyadh looks to support the economy while also slowing down the pace of budgetary expansion.

Economists say this budget marks the slowest rate of spending growth in a decade. It is the third-year running that Riyadh has predicted a budget deficit, and Banque Saudi Fransi estimates that it is based on an average oil price of $58 a barrel.

“The 2011 budget demonstrates that the kingdom is dedicated to continuing stimulatory spending to develop the economy and persuade private investors to do the same, as they gradually emerge from a phase of deleveraging,” says John Sfakianakis, the bank’s chief economist.

“A slowdown in the pace of budget growth, however, also signals the state’s goal to rein in overspending, which reached 25.5 per cent in 2009 and 16 per cent in 2010.”

The budget, approved by the Council of Ministers on 20 December, focuses on infrastructure and social spending. Education, training, health, infrastructure and social development make up 46 per cent of the budget.

A total of SR256bn is planned for new and ongoing projects. This includes plans to build 610 new schools and 6,600 kilometres of new road.

State credit institutions, including the Public Investment Fund (PIF) and Saudi Arabia Industrial Development Fund (SIDF), are expected to lend SR47bn in 2011.

According to the Finance Ministry’s preliminary figures, Saudi Arabia’s economy grew by 3.8 per cent in 2010, and inflation was 3.7 per cent. Total revenues were SR735bn, well above the budgeted SR470bn, largely due to higher oil prices. That enabled the kingdom to record a SR108.5bn surplus and reduce debt to SR167bn from SR225bn at the end of 2009.

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