Budget estimates

Al-Rajhi Capital's estimate of government revenue for the year 2011 is based on its expectation of average oil price of $106 per barrel. Government revenue is expected to jump almost 35 percent in 2011 compared to the actual revenue in 2010. The jump in the total revenue is expected mainly due to higher oil production and prices.

"We expect total revenue to be SR992 billion with oil revenue at SR908 billion in the current year," Al-Rajhi Capital said in its report before the budget announcement.

However, government expenditure is also expected to have jumped due to many initiatives taken by the government early this year. Total expenditure is expected to jump at SR814 billion, a 30 percent increase in 2011 compared to the actual expenditure in 2010. Thus, total budget surplus is likely to be SR178 billion this year.

Al-Rajhi Capital said expectation of oil price in the year 2012 is lower at $95 per barrel. Therefore, decline is expected in both government revenue and government expenditure in 2012 compared to 2011 mainly on account of expected fall in nominal oil sector GDP and fall in one time expenditure incurred by the government this year.

Total revenue is expected to decline from SR992 billion in 2011 to SR890 billion in 2012 mainly due to expected decline in oil revenue from SR908 billion to SR 802 billion. Total expenditure is expected to decline from SR814 billion in 2011 to SR746 billion in 2012 mainly due to decline in current expenditure from SR604 billion to SR512 billion. Therefore, fiscal surplus is also expected to shrink to SR144 billion next year.
 
Public debt

With the improvement in its fiscal position as from 2003, the government has continued to substantially reduce its public debt. Preliminary figures indicate that the public debt dropped to SR162 billion by the end of 2010. This drop was due to a rise in oil revenues which resulted in increased surplus in the government budget. A part of that surplus was allocated to repay the public debt.

Following the trend in recent years, public debt is likely to decline in 2011 and 2012 as government budget surplus is expected in both years. Public debt is expected to decline to SR160 billion at the end of 2011 compared to SR167 billion in 2010. However, due to sharp rise in nominal GDP (gross domestic product) this year, debt to GDP ratio is expected to decline faster from 10.2 percent in 2010 to 8.1 percent in 2011. In 2012, gross public debt is expected to decline further to SR155 billion which will translate into 7.4 percent of GDP.
 
Salient features

The main features of government budget next year are lower revenue and lower expenditure. The expectation of lower revenue is based on belief that average oil price is going to be lower as well as oil production in Saudi Arabia. On expenditure side, the focus of the government budget for next year is likely to be the continuation of priorities outlined earlier this year through Royal decrees announced in February and March. The announcements included public sector wage increases, expansion in public employment, unemployment benefits, and measures to improve access to housing. "However, we expect expenditure in 2012 to be lower because of one-time expenditures such as two-month bonus to public sector employees, capitalization of Real Estate Development Fund and Saudi Credit and Saving Bank are not going to be there. These items have been estimated to cost the government almost SR90-$100 billion in 2011," Al-Rajhi Capital said.

Moreover, re-current expenditures are likely to continue to rise due to increase in minimum wages, social security such as unemployment allowance etc. and hiring 60,000 at Ministry of Interior.

Capital expenditures, particularly related to housing, are expected to pick up next year. This is likely to be the main priority for the next year budget. Allocation to building and expansion of hospitals will be another important focus for the budget.

Education and training will remain the largest recipient of the government funds as the government has reiterated its priority to develop skilled manpower in the country. The government has increased student scholarship even as it provides further incentives such as housing to teachers, Al-Rajhi Capital said.