RIYADH, 12 December 2007 — Saudi Arabia plans to continue its spending spree for a fourth year running after unveiling a massive expenditure bill in its 2008 surplus budget, spurred by soaring oil revenues, economists said yesterday.
The world’s top oil exporter and producer on Monday projected spending in 2008 at $109.3 billion, the second highest in the Kingdom’s history.
Economists expect that actual spending in 2008 will turn out to be higher than projected, as has been the case in some previous years. In 2007, actual spending exceeded budget projections by about $17 billion.
The Ministry of Finance also said spending this year would reach a record $118.1 billion, while it was $105 billion in 2006.
The sharp rise in year-on-year spending comes on the back of high oil revenues that have resulted in a huge surplus amounting to $220 billion between 2003 and 2007.
The most important feature in the country’s rising spending is that capital expenditure, which focuses on development projects, has risen quickly, leading Saudi economist Ehsan Bu-Hulaiga said.
“The pace of investment spending has been rising rapidly. The trend began in 2005 and is continuing. In 2008, 40 percent of total spending is allocated to mega-projects and infrastructure,” Bu-Hulaiga told AFP.
“This is certainly very high. Huge funds have been allocated for education and health projects, besides other (long-term) productive projects,” he said.
The 2008 budget earmarked $28 billion for education and about $12 billion for health. In all, $44 billion will be spent on new projects.
Saudi Arabia’s Finance Ministry on Monday projected revenues for 2008 at $120 billion and spending at $109.3 billion, leaving a surplus of $10.7 billion.
The actual surplus is expected to be much higher, though, as the government normally uses conservative oil price forecasts for its projected budgets.
The Kingdom, which about a quarter of global oil reserves, pumps nine million barrels per day. Its population of around 24 million includes six million foreigners.
Saudi economist Abdulwahab Abu-Dahesh said that the Kingdom’s fiscal expansion policy could backfire, especially because of inflation which has increased sharply this year to more than four percent.
“I think that spending has been higher than required especially with high inflation and slow-paced implementation of projects signed last year and in 2007,” Abu-Dahesh told AFP.
The government has also been using part of the budget surplus to repay its huge public debt which topped $170 billion at the start of the decade.
The Finance Ministry said that some of this year’s surplus will be used to reduce the public debt to $73.6 billion from $97.6 billion at the end of 2006. It will be 19 percent of gross domestic product.
Most of the debt is domestic and owed to local banks and two state-run funds.
However the government still uses a large part of public expenditure for current spending, mostly to pay the wages of more than one million civil servants, in addition to administrative costs.
“It’s very difficult to reduce current spending because it pays for mostly Saudi employees,” Bu-Hulaiga said.
The 2007 budget surplus of $47.6 billion is lower than in the previous two fiscal years because of a drop in revenues and a rise in spending, Abu-Dahesh said.
Meanwhile Saudi Arabia continues to enjoy its best ever economic indicators. GDP is estimated to reach a record $377 billion by the end of this year, recording an annual nominal growth rate of 7.1 percent and 3.1 percent in real terms.
Trade surplus is expected to reach $148.2 billion, while the balance of payments will record a surplus of $89 billion this year, down from $98.9 billion in 2006.