In contrast to a budgeted deficit of SR40 billion, the government posted a robust SR306 billion surplus on the back of revenues of SR1.11 trllion. Thanks to historically high oil prices and increased production, government revenues were double the 2011 budget projection of SR540 billion. But also actual expenditure of SR804 billion was a remarkable 38.6 percent ahead of the budgeted total of SR580 billion. This highlights both the fiscal resilience of the Kingdom but also the numerous new near- to medium-term spending commitments of some SR500 billion that were unveiled in the spring. The key objective was a shift to a more inclusive growth paradigm through increased spending on housing, benefits, and job creation. However, the government also invested heavily into future development, among other things through 2,600 projects, worth a combined SR148.3 billion, signed with the private sector.

Overall, the Kingdom’s fiscal position is exceptional by global standards. This year’s surplus is equal to some 10.4 percent of GDP. But the role of government spending has also been critical for economic activity, with public sector spending reaching an almost European-style 37.2 percent of GDP. This strong fiscal performance has brought public indebtedness down to historically and internationally modest levels. The overall government debt is estimated to have decreased from SR167 billion in 2010 to SR135.5 billion — or only 6.3 percent of GDP — this year, far less than this year’s surplus. Among other things, hopes are growing that this state of affairs will encourage the authorities to turn to bond and sukuk markets to fund government-backed infrastructure projects as public debt of 10 percent of GDP had been previously indicated as a threshold for renewed government issuance. Preparations for a sovereign sukuk are understood to be well advanced.

The fiscal strength predictably went hand in hand with a heft external surplus as exports rose by 37 percent to SR1,287 billion. This was strongly led by oil as nonoil exports “only” posted a 14 percent gain, still a respectable figure in a challenging global economic environment and reflective of the closer economic ties with the rapidly growing emerging economies. By contrast, imports are estimated to have risen by an unexpectedly tame 2 percent to SR370 billion, possibly an underestimate given overall growth. This would translate into a trade surplus of SR915 billion, up a robust 59 percent on last year and equivalent to 42.3 percent of GDP. The current account surplus is set to more than double from SR250 billion to SR598 billion or 27.6 percent of GDP.

Fiscal policy going forward is marked by considerable continuity even though it also reflects the exceptional strength the Kingdom’s fiscal position. Government revenues are projected to be SR702 billion, an impressive 30 percent of the 2011 budget plan, albeit clearly behind the actual estimated revenues for the year.

This reflects a continued commitment to cautious planning with an oil price estimate still just ahead of $60 per barrel.

Expenditures are projected to reach SR690 billion, which represents a 19.0 percent increase on last year’s budget. The government hence foresees a small surplus of SR12 billion. In practice, however, the Saudi government has historically significantly overspent its budget, often by 15 percent or more. The room – and possibly also the need – for fiscal discretion is considerable this year as well in the face of the uncertain global economic environment. Nonetheless, the continued resilience of oil prices, at least barring a major economic shock in Europe or elsewhere, should once again translate into a far more substantial surplus of more than 6 percent of GDP. However, the potential for oil revenue growth may prove limited because of a low probability of significant positive momentum in either the oil price or in production.

Also in terms of its spending priorities, the 2012 accentuates the priorities established in recent years and months. Some SR265 billion will be allocated to new and ongoing projects. Reflecting the continued strong emphasis of human capital development in the face of the Kingdom’s rapid population growth, education remains the leading expenditure item at SR168.6 billion, accounting for 24 percent of total spending on the back of a 13 percent increase over last year. Health and social spending is set to increase by 26 percent to SR86.5 billion, or some 12.5 percent of the total. New spending will include 17 hospitals, social centers, labor offices, and programs to alleviate poverty. Water, agriculture, and infrastructure will receive SR57.5 billion (8.3 percent of the total), 13 percent up on last year. Transportation and telecommunications are due for a remarkable 40 percent increase to SR35.2 billion (5.1 percent of total spending), in large part thanks to the new King Abdulaziz Airport in Jeddah and six other airport upgrades, as well as 4,200 km of new roads. Municipal spending, largely on traffic infrastructure upgrades, is set to increase by 19 percent to a total of SR29.2 billion or 4.2 percent of overall spending. In addition, specialized credit institutions are expected to make SR86.1 billion worth of loans, which is nearly 20 percent of the total provided by them since their inception, in many cases in the 1970s.