Kingdom Heading Toward Eighth Budget Surplus

RIYADH – Saudi Arabia is on track to run its eighth current account surplus in a row and the largest in its history at SR428.2 billion ($1141 billion), said a study conducted by Samba Financial Group obtained by Arab News yesterday. The Kingdom will earn a SR761 billion ($202.9 billion) in oil exports earnings this year, an all-time record, representing a 25-percent increase in oil earnings compared to last year.

“This year is shaping up to be another record year for fiscal performance with the largest budget surplus on record revenues, spending and declining debt,” said the study. The study said that the Saudi government would close the year with a surplus SR250 billion ($66.6 billion) despite spending more than projected.

“Saudi government spending was growing 20 percent annually, which in itself represented strong fiscal stimulus to the economy,” the report stated. The pattern of government spending mirrors the nature of the boom so far driven by growth in government expenditures and investments in expanding the operations of Saudi Aramco, the world’s largest oil company.

“But a substantial amount of the oil revenues is accumulating as foreign assets at SAMA (the Saudi Arabia Monetary Agency), about SR25.2 billion per month, which contributes to our view that the strong economic growth the Kingdom is experiencing will last for many years, as much of the oil revenue is being set aside for future needs,” said the study.

Referring to the oil sales on high global oil prices, the study has predicted that the macro- economic forecast is for nominal GDP growth of 20 percent this year and the real GDP growth of 5.8 percent.

It further said that the non-oil private sector would grow 8.9 percent in real terms, the highest growth in 25 years, while inflation would be under two percent. Foreign assets at SAMA will grow to about SR840 billion ($224 billion), enough to provide budgetary support for years to come and defend the currency’s peg to the dollar. In this regard, there was speculation recently of a revaluation upward of the Saudi riyal’s exchange rate against dollar. But SAMA has made it clear that this is not going to happen anytime soon.

Referring to the major downturn in the local stock market, the study said that there were some economic implications of the sharp decline in the market. “But these are more than offset, however, by the strength of the oil market, and we have revised upward our forecasts,” said the study.

Although the stock market rattled nerves in the first half of the current year, it should not distract from the broader story of powerful  economic performance.

Another major theme of the first half of 2006 was megaprojects besides oil and stock market. About 37 major projects that are underway or have a high likelihood of implementation over the next several years with a total value of over SR1.6 trillion ($426 billion) represent Saudi commitment to the nation’s progress. The defense and security projects as well as security purchases will account for 17 percent of the total projects.

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