Saudi budget set to boost projects sector

01 January 2010

Government increases spending by $69bn

Saudi Arabia has provided a boost to the kingdom’s projects sector, with the 2010 budget including SR260bn ($69bn) of investment in new and existing projects, an increase of 16 per cent on the previous year.

Economists say the rise in government spending, coupled with an expected increase in bank lending, will help to increase the amount of activity on infrastructure projects in 2010.

“This is an expansionary budget in terms of infrastructure spending,” says John Sfakianakis, chief economist at Banque Saudi Fransi. “We will also see more aggressive lending by banks later in 2010 which will also help drive development projects.”

In total, the 2010 budget includes a 14 per cent increase in spending compared with the 2009 budget. Total expenditure is expected to exceed SR540bn.

There are double-digit spending increases for key areas of the economy, including the health, transport, telecoms and water sectors.

“The last 12 months have been very challenging but we are definitely entering the recovery now in 2010,” says one economist in the kingdom.

However, the government should remain cautious to avoid over-heating the economy, says Sfakianakis. “The government wants to create a market which has depth and not just sudden spikes in activity,” he says. “Saudi will remain a very competitive market.”

The budget is based on the assumption that oil prices will average $44 a barrel through the year. The government predicts it will have a deficit of SR70bn over the year, compared to the SR45bn deficit in 2009.

However, with oil prices now at about $72 a barrel, and expected to remain relatively high in the year ahead, the government could still record a surplus over the coming year. Banque Saudi Fransi is predicting that oil will average $75 a barrel in 2010, leaving a budget surplus of about $50bn.

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