Saudi Arabia cuts spending increases for next year

Saudi Arabia has dramatically cut its expenditure increase for next year as a revival in the private sector means the kingdom will be able to ease stimulus measures.

Nonetheless, its 580 billion Saudi riyals (Dh568.04bn) of spending is still far more than most of the kingdom's fellow members of the Group of 20 (G20) can afford relative to their GDP.

"A slowdown in the pace of budget growth signals the state's goal to rein in overspending and employ more prudent and efficient fiscal policies in the coming years," said John Sfakianakis, the chief economist at Banque Saudi Fransi.

The budget marks a more measured pace of spending than in previous years. In the seven years to this year, annual budget expenditure grew by more than 10 per cent in all but one year.

Next year, the lion's share of the 7.4 per cent spending rise will go towards infrastructure, health, education and training, under the budget approved by the Council of Ministers on Monday.

Officials have budgeted for a deficit for the third year in a row. A deficit of 40bn riyals is projected, based on an estimated break-even oil price of US$58 a barrel.

Nevertheless, strong oil prices should ensure the budget remains balanced at the very least.

Saudi Arabia beat analysts' forecasts by posting a healthy budget surplus of 108.5bn riyals this year, according to preliminary estimates released in the budget report.

"Although many countries are being forced to cut back spending to contain budget deficits due to concerns about debt, the kingdom does not face any problems," wrote Paul Gamble and Brad Bourland of Jadwa Investment in a research report.

"Any deficit can be financed comfortably using SAMA's [Saudi Arabia Monetary Authority] huge stock of net foreign assets."

In 2008, officials approved a five-year, $400bn (Dh1.46 trillion) stimulus package to ward off the impact of the global financial crisis on the economy. It was the biggest such package by any of the G20 nations as a percentage of GDP.

Although expenditure next year will ensure the government continues to play a supportive role in the economy, the budget is a recognition of growing optimism within the private sector.

Bank lending has picked up, as has consumer and corporate spending. Oil prices also rose by 25 per cent during the year as global demand surged.

Data from the budget report showed GDP grew 3.8 per cent this year, driven by a 5.9 per cent increase in the government sector. Expansion in the private sector reached 3.7 per cent, according to Banque Saudi Fransi.

The report also revealed further progress in cutting the kingdom's debt. Public debt fell almost 26 per cent to 167bn riyals.

Wage increases for public-sector staff and more money for infrastructure projects meant expenditure rose 16 per cent this year to 626.5bn riyals.