Saudi Arabia’s military spending shows no signs of slowing in the face of declining oil revenue, with the kingdom forecast to become the fifth-biggest buyer of arms by 2020.
The kingdom’s defence bill is forecast to dip this year to US$49 billion from $50bn last year, before gradually rising to about $60bn a year by 2020, according to figures from IHS Jane’s most recent Defence Budgets Quarterly Review, released yesterday.
Such an increase will make Saudi Arabia the fifth-largest spender on arms by 2020, up from its current position of eighth.
“Despite Saudi Arabia’s heavy exposure to oil price fluctuations, there have been very few signs of any severe reactionary adjustments to government spending trends,” said Craig Caffrey, the principal defence budget analyst at IHS Jane’s Aerospace, Defence & Security. “The kingdom has only cut defence and security expenditure once over the last 15 years.”
Saudi Arabia’s defence budget has been expanding at an annual rate of about 14 per cent over the last decade. This accelerated to an annual growth rate of 19 per cent since 2011.
“We certainly expect a significant slowdown in the short term but longer term prospects remain strong,” Mr Caffrey said.
IHS’s predictions come amid a projection by the IMF that Saudi Arabia will this year run a budget deficit equal to 20 per cent of economic output, compared with its prediction last month of a deficit equal to 14.2 per cent of GDP.
The IMF yesterday predicted that the kingdom’s economy would grow by 3.5 per cent this year, slowing to 2.7 per cent next year “as government spending begins to adjust to the lower oil price environment”.
Saudi Arabia's ministry of finance said in December that it would maintain its spending plans despite predicting that government revenue would fall to 715bn riyals (Dh700.2bn), thanks mainly to falling oil prices, from 1 trillion riyals last year.
After reaching $114.46 per barrel last June, crude oil prices slumped to a low of $46.59 a year in January and are hovering at about $65 a barrel.
The kingdom has been burning through its reserves at a record pace to finance government spending. That is likely to slow “as the government starts to issue debt to finance the deficit instead”, the IMF said.
Elsewhere in the region, the UAE’s defence budget is forecast to increase at a “moderate” rate in 2015, before accelerating from 2017 onwards as the process of fiscal consolidation eases, according to IHS Jane’s.
The UAE announced a series of major defence contracts at this year’s International Defence Exhibition (Idex) in Abu Dhabi in February.
These included a Dh3.74bn deal with Airbus and Thales for the provision of satellite and ground control stations, and a Dh2.4bn contract with Al Taif Technical Services to provide maintenance services to UAE Armed Forces’ vehicles.
“While a more cautious approach may be adopted with regards to major procurement projects, the $5bn of contracts announced at Idex in February 2015 suggests that funding is still available,” IHS Jane said.
jeverington@thenational.ae
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