Crown Prince: King stresses on the implementation of work honestly and sincerely
GDP up 16.6% to SR.1.63 trillion
Dept slashed to 10.2% of GDP
A Budget of hope for youth
Crown Prince Sultan, deputy premier and minister of defense and aviation, signs the budget for 2011 during a Cabinet meeting in Riyadh on Monday. (SPA)
Saudi Arabia announced Monday the highest national budget in its history with plans to spend SR580 billion ($154.7 billion) in 2011 and invest over SR400 billion ($106 billion) in education and infrastructure to spur growth and create jobs for its fast-increasing young population.
Crown Prince Sultan, deputy premier and minister of defense and aviation, approved the budget, which projected revenue at SR540 billion ($145 billion), during a special Council of Ministers session.
Finance Minister Ibrahim Al-Assaf, who presented the budget, said the Kingdom’s gross domestic product (GDP) for 2010 was expected to reach SR1.63 trillion ($435 billion), in accordance with the General Statistics Department’s estimates. The amount is 16.6 percent more than the previous year. He attributed the increase to a 25 percent growth in the oil sector.
“On behalf of Custodian of the Two Holy Mosques King Abdullah, I am announcing the budget for the new fiscal year, which amounts to SR580 billion, SR40 billion more than the previous budget. This reflects our efforts to strengthen the country’s development and provide more jobs for our citizens,” Prince Sultan said.
The crown prince congratulated the king and people of Saudi Arabia on the occasion and hoped the new budget would bring greater progress and prosperity to the country. “We look forward to the king’s return to the Kingdom after making a full recovery,” he said. King Abdullah is currently recuperating at a US hospital after successful back surgery.
Saudi and foreign economists commended the deficit budget saying it would accelerate growth and boost foreign investment. “The Kingdom's expansionary budget for 2011 remains consistent with the fiscal policy framework followed over the last seven years,” Said Al-Shaikh, NCB Group chief economist, told Arab News.
He noted three key aspects of the budget: Accelerating spending with the emphasis on capital expenditures, allocating part of the surplus toward building reserves and gradually retiring the public debt. “These three aspects are the fundamentals of the Kingdom’s fiscal policy,” Al-Shaikh said.
For John Sfakianakis, chief economist at Banque Saudi Fransi, the budget demonstrates the state's willingness to continue steering the economic recovery. “The high oil price environment in 2010 enabled Saudi Arabia to post a very strong budget surplus of SR108.5 billion ($28.9 billion) in 2010, more than double our forecast,” Sfakianakis said. Higher oil revenue and slow growth in imports allowed for a very comfortable current account surplus of SR260.9 billion ($69.6 billion), triple the year earlier.
“The 2011 budget demonstrates that the Kingdom is dedicated to continuing stimulatory spending to develop the economy and persuade private investors to do the same as they gradually emerge from a phase of de-leveraging,” the BSF economist said.
The private sector is showing signs of a healthy comeback, assisted by the government's commitment to invest and a guarded pickup in bank credit growth, Sfakianakis said. He estimated the break-even price for the 2011 budget at WTI $58 a barrel.
Jarmo T. Kotilaine, chief economist of NCB, said the budget underscored the government’s commitment to supporting economic activity at a time of elevated global uncertainty. "The spending priorities of the budget indicate a continued clear commitment to the strategic priorities staked out in recent years and clearly reaffirmed in the new five-year development plan,” he said.
“Much of the government spending is already effectively pre-determined by previous commitments, not least the $400 billion five-year program to upgrade infrastructure by 2013. All of this is needed to position the country for sustainable growth and job creation," Kotilaine said.
By adhering to its program, formed by necessary long-term priorities, the government can claim a great deal of credit for staying its course at a time of global crisis. The NCB economist commended the government’s efforts to bring down the public sector debt to 10.2 percent of the GDP as very impressive news at a time when the corresponding figure in the West is set to hit an average of 100 percent GDP. “Saudi Arabia with its 10.2 percent figure stands out as a point of exceptional fiscal health and economic resilience in the world. This should help further boost the standing of the Kingdom in the eyes of international investors,” Kotilaine added.
Commenting on GDP figures, Faisal Alsayrafi, managing director and CEO of the Financial Transaction House (FTH), said the 16.6 percent increase in GDP to SR1.63 trillion reflects the strength of the Saudi economy. “The allocation for new projects shows how the government is committed to continue the development process to achieve sustainable growth,” he added.
Basil Al-Ghalayini, chairman and CEO of BMG Financial Group, noted the government’s efforts to invest more on human capital. “The reliance on oil income is still high where the government may direct some of the expenditure on industrial projects which will support all elements of the economic cycle rather than concentrating on the construction and trading sectors,” he said.
“As for sovereign debt, it is a healthy sign and should enrich the sukuk market within the debt capital market in the country," he added.
Speaking about the 2010 budget, Al-Assaf said the actual revenue for the year would be SR735 billion ($196 billion) and actual expenditure SR626.5 billion ($167.1 billion), registering an increase of SR86.5 billion ($23.1 billion) in spending.
He said the government signed 2,460 contracts worth SR182.5 billion ($48.7 billion) with the private sector in 2010, with a 26 percent increase over 2009.
He pointed out that the country’s public debts, which are entirely domestic, declined from SR225 billion ($60 billion) to SR167 billion ($44.5 billion) at the end of 2010.
“The national budget will continue to focus on enhancing the development process and ensure that investment programs remain conducive to strong and sustainable economic growth,” the Finance Ministry said in a statement, listing education, health and infrastructure projects among priorities.
The Kingdom has accumulated huge reserves during a six-year oil price boom and is planning to spend more than $400 billion over the five years to 2013 to upgrade infrastructure, including airports and roads.
For 2011, the government plans to increase spending for education, health, transport and other infrastructure projects ranging some 5 to 13 percent over budgeted 2010 figures.
The International Monetary Fund forecasts Saudi Arabia’s GDP to expand by around 3.4 percent in 2010 and 4.5 percent in 2011. The Kingdom, the world’s top crude exporter, has benefited from oil prices above $73 a barrel for most of the year, with prices more recently hovering near the $90-a-barrel mark.