Reaping a windfall from record prices for its crude exports, Saudi Arabia yesterday announced a 2004 budget surplus of SR98 billion ($26.1 billion) and set a balanced budget for 2005 fiscal with revenues and expenditures projected at SR280 billion ($74.6 billion).
Addressing the budget session of the Council of Ministers in Riyadh, Custodian of the Two Holy Mosques King Fahd said the 2005 fiscal budget would give priority to development projects and repaying public debts estimated at SR660 billion. The budget showed an SR50 billion rise in expenditures compared to last year.
He said the government would use the windfall from oil price hike to provide essential services for citizens all over the country. “We’ll also give priority to cutting down public debts,” the Saudi Press Agency quoted him as saying.
Like last year, the government has allocated 25 percent of the budget for education and training. “This is to improve the educational and training environment and increase job opportunities for citizens,” the king said. The budget has made allocations for the establishment and renovation of 1,420 schools, 22 colleges, four university hospitals, and 61 training colleges and centers.
The world’s biggest oil exporter said government revenues this year soared to SR393 billion, almost double the initial government projections, while spending was SR295 billion.
This year’s surplus was the second in a row for the Kingdom, which is emerging from two decades of deficits, buoyed by high output and oil prices. The 2003 surplus was SR36 billion.
“These have been the best two years for a long time,” said Khan Zahid, chief economist at Riyad Bank. Brad Bourland, chief economist at Samba Financial Group, said the budget surplus was in line with earlier Samba forecasts. “It is a tremendous budget surplus and a significant portion of which will be used to pay down debt,” he added.
Growth of gross domestic product (GDP) this year is estimated at 16.9 percent at current prices and 5.3 percent at fixed prices, the Finance Ministry said.
“One of the major factors contributing to this growth is the increase in oil prices as well as the quantities produced,” the ministry said in a statement. Saudi Arabia has raised its oil output to 9.5 million barrels per day in recent months. But the non-oil industrial sector was also expected to register a rise of 6.4 percent in constant prices.
Expenditure this year was SR65 billion above the government’s projection of SR230 billion, mainly because of emergency spending on security. Additional costs included two months’ bonus pay to security forces, as well as settlement of payments to wheat and barley farmers for their crops, the ministry said.
More than SR30 billion of this year’s surplus will go toward development projects announced by Crown Prince Abdullah. Another SR11 billion will be used to raise the capital of the Saudi Credit Bank and Saudi Real Estate Fund.
“The remaining revenues will be allocated to settle part of the public debt,” the ministry said, predicting debt would fall to SR614 billion from 660 billion in January 2004.
Saudi Arabia expects a balance of payments surplus of SR193.2 billion in 2004, up sharply from SR105.2 billion last year. Non-oil exports are estimated to grow by 24 percent to SR51 billion, still accounting for only 11 percent of total exports.
The ministry said robust private sector growth had been fueled by renewed confidence stemming from capital market reforms, strong sovereign credit ratings and changes to corporate tax laws.
The new budget gives priority to education, health, social affairs, municipal services, water, sewers and roads. “The budget put special emphasis on capital expenditures that will create more job opportunities and enhance economic activities, and boost economic growth,” the ministry said.
According to the estimates of the General Statistics Department, the Kingdom’s gross domestic product (GDP) for 2004 fiscal year is expected to reach SR931.8 billion. The department also expected a growth rate of 7.8 percent in the sectors of telecommunications and transport, 4.5 percent in electricity, gas and water, 7.5 percent in building and construction sector, and 4.9 percent in wholesale and retail trade, restaurants, and hotels.
“The budget coincides with the beginning of the 8th Five Year Plan (2005-2010), which is replete with development programs aimed at strengthening the economy and achieving comprehensive growth,” the king said.
King Fahd’s speech was read out by Abdul Aziz Al-Salim, secretary-general of the Cabinet.
King Fahd said the budget has been prepared to make the required allocations available for meeting the expenditures for the operation of the ministries and governmental institutions, as well as to continue the process of modernizing and maintaining the public utilities and completing projects that have already been undertaken.
The budget contains new development and service projects as well as projects that will positively contribute to enhancing the development process and the private sector’s role, the king said. “The allocations made in the 2005 fiscal budget for new projects amount to about twice the allocations made in the last fiscal budget,” he pointed out.
The new budget has made allocations for the establishment and renovation of 420 primary health care centers in various parts of the Kingdom. This figure is three times the allocations made in the last budget. Allocations have also been made for the establishment of 23 new hospitals as well as furnishing, expanding, modernizing and developing the existing health facilities.
The budget also includes allocations for the development of the municipal services, boosting the agricultural sector, the installation of information technology at government departments and construction of 6,700 km of roads. More than SR17 billion have been earmarked for water and sewage projects and dams.
The budget has allocated SR75.5 billion for new projects and programs, Culture and Information Minister Dr. Fouad Al-Farsy said, adding that it includes development projects for all regions of the Kingdom. “These projects will positively contribute to improving economic growth, creating new job opportunities for the citizens and encouraging private investment,” he added.
The budget has earmarked SR70.1 billion for public education, higher education and manpower training, the minister said. As much as SR14.65 billion was allocated for building new schools, universities and colleges and SR27.1 billion for health services and social development. The total amount allocated for new projects in the health sector is SR4.6 billion. They include 23 hospitals with a total of 3,150 beds.
SR10.65 billion will go for municipal services while SR7.2 billion for new projects and expansion of some existing projects. These projects include tunnels, flyovers, roads and streets and rainwater drainage.
For projects in the sectors of transport and telecommunications, SR8.85 billion has been allocated.
Allocations have also been made for new infrastructure projects in industrial cities of Jubail and Yanbu. The capital of the Real Estate Development Fund has been increased by SR9 billion while that of the Saudi Credit Bank by SR2 billion. The two state-owned lending organizations will give new loans worth SR10 billion.
Bourland said the new budget is the most stimulative in many years and because of high oil prices there is a significant increase in spending. “This budget also shows robust growth in a low inflation environment.” Benefit of high oil prices in 2004 will be felt strongly in 2005, he added.
Zahid told Arab News that “this year’s budget shows a surplus of SR98 billion and GDP growth figure is highest in a decade.”
“It will be a good move by the government to use part of the surplus to pay off debt,” he said.
Andre Ugarov, vice president at Financial Transaction House, said that “the government faces real challenge of how to use budget surplus of this year in social, infrastructure and education projects,” adding that the government can take advantage of high oil prices for economic development.
“This is a budget with wonderful priority areas, seeking greater emphasis on optimum utilization of available resources,” said Laura Collins, a business consultant working in Riyadh. She said the government revenues were bound to increase with positive outlook of oil prices and Saudi share in global oil supply.
Collins said that the social infrastructure, education, health, energy and water supply, telecommunications, and waste management are also essential elements to improve investment climate for locals and attracting foreigners to the Kingdom. “This budget serves the purpose,” she said adding that Saudi Arabia’s plan to privatize vital sectors will help reduce pressure on government spending.
Referring to the budget surplus, Hussain Ali H. Shubokshi, president of Shubokshi Development & Trading Company, said the budget would boost social and economic progress. He said coordination between fiscal and monetary policies was an essential requirement for effective execution of economic growth strategies. He called for more efforts to accelerate privatization and economic reforms, and reduce the role of state whenever and wherever possible.
Abdelmenem Jamil Addas, a professor of financial markets, at the College of Business Administration, said: “The budget’s figures released by the government raise more questions than answers. One, on what basis were the budgeted revenues projected, more importantly, how much revenues are expected to generate from oil revenues versus non-oil revenues? It is obvious that budgeted revenues often vary from the actual revenues. Two, with the balanced budget for next year, the total budget deficit will remain a burden on the country. In order to eliminate that looming deficit, the government either has to take significant cuts in its expenditures or raise indirect taxes such as imports taxes, taxes on government services (road toll, cigarettes taxes etc.), or increase revenues from oil sales.”
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