RIYADH, 22 August 2004 — Saudi Arabia is headed for a budget surplus of as much as $35 billion this fiscal year, as it enjoys a revenue windfall with world crude prices hitting new highs, analysts said yesterday.
“We are currently revising our forecast. We believe the budget surplus might reach $35 billion because of the record high oil prices,” said Nahed Taher, senior economist at the National Commercial Bank (NCB).
The OPEC kingpin has seen its oil receipts soar as world prices have neared $50 a barrel on the back of Iraq security fears.
NCB, the largest bank in the Middle East in terms of capital, forecast in early August that the Kingdom would record a budget surplus of $14.9 billion in the current fiscal year.
Taher told AFP, however, that the bank based its estimates on an average oil price of $30 a barrel. “That was a price used by major banks and financial institutions,” she said.
But in the face of the continued surge in prices, NCB is to amend its forecast within the next week.
“We are now debating an average price of between $37 and $38 per barrel for the whole year,” said Taher.
The Samba group said in July that it expected the budget surplus to reach $29.8 billion, just above the highest ever recorded surplus of $29.6 billion in 1981.
“The budget surplus will be as big as I forecast, if not higher. I am still comfortable with the figures,” said Brad Bourland, chief economist at Samba, which was known until recently as the Saudi American Bank.
The Saudi government has projected a $8 billion deficit for the 2004 fiscal year. Revenues were projected at $53.3 billion and expenditures at $61.3 billion.
Samba, however, expects revenues to be nearly double the official estimate, coming in at $97.87 billion, according to its July report.
NCB has forecast total revenues of $78.9 billion, of which oil revenues represent $66 billion.
“We thought the situation in Iraq was getting better,” said Taher.
“But the geopolitical uncertainties in the region, added to the high demand for oil in China and the continuing buildup of strategic and commercial inventories in large consuming countries” warrant forecasting higher oil prices and subsequently higher revenues.
A projected surplus of $35 billion may have to be revised even higher later in the year “if the current level of prices continues,” she said.
Despite the expected windfall, Bourland does not anticipate that the government will splash out on funding for human development projects in the Kingdom, which has a high level of unemployment among its nationals.
“If they spend on human development, it will be next year,” he said, adding that paying off some of the public debt will take priority.
The Kingdom posted a $12 billion surplus in the 2003 fiscal year, the first non-deficit budget since 2000, thanks to a rise in oil prices coupled with a production hike.