Saudi budget 2014 and economic performance

Last Monday (Dec. 23), Saudi Arabia announced its 2014 budget. For the coming fiscal year, it projected a balanced budget of $228 billion. This is the sixth budget since the global financial crisis. It continues the expansionary path the Kingdom has taken since then, with substantial additional outlays for education, health and infrastructure, despite the decline in oil revenue.
Together with the 2014 budget, the government issued the most detailed statement to date about actual performance of both government finances and the economy as a whole during 2013. Government expenditure rose in 2013 to $247 billion, an increase of 15 percent over 2012. Spending went over budgeted outlays by about 13 percent. Remarkably, however, despite lavish government expenditure, the economy did not heat up. Inflation was kept at around three percent (3.35%), only slightly over the 2012 level of 2.9 percent.
Actual revenue in 2013 exceeded budgeted revenue by a massive 34 percent. However, the government statement reveals a substantial drop in actual oil revenue from the previous year. While oil revenue hit the record level of $1,140 billion in 2012, it has declined to $1,017 billion in 2013, a drop of about 11 percent.
While government finances remain solid, we see the first signs in years of a slowdown in oil revenue that led directly to a drop in government revenue of 9 percent during 2013. At the same time, expenses rose by 8 percent. Obviously, if the two trends continue in future years, we can expect to see a budget deficit before too long. However, since Saudi Arabia has accumulated a healthy public reserve fund of about $700 billion, deficits would not represent a problem for a while.
The sharp drop (11%) in oil revenue was accompanied by a healthy increase (14%) from non-oil sources, which now represent about 10 percent of government income. Those sources have to be developed further to guard against future deficits due to fluctuations in oil prices.
Looking at the big picture, in 2013 Saudi gross domestic product (GDP) registered a record level of $745 billion, by far the largest GCC and Arab economy, making it the 19th economy in the world in GDP size, ahead of Switzerland, Sweden, Norway and Iran. However, it is notable that due to the drop in oil revenue in 2013, there was only a modest growth in GDP of only two percent, compared to double-digit growth rates in previous years.
Looking at GDP components, we see that oil GDP in fact declined in 2013 by nearly four percent, while non-oil sector grew by over 9 percent. The healthy growth in the private sector moderated the impact of the oil sector decline, pointing again to the significance of economic diversification and the need for encouraging the private sector to have a larger share in the GDP. When that happens, the private sector would be able to better cushion the impact of volatile oil prices.
Looking at the trade side of things, we also see a drop in the overall value of exports to $367 billion, down from $396 in 2014, a decline of 7 percent. However, looking at trade more closely, we see a more pronounced drop in the value of oil exports of about 9 percent, but an increase of non-oil exports by about 7 percent. This is another indicator that points out the potential role of non-oil exports in moderating the impact of oil price volatility.
Over the past eight years (2006-2013), Saudi Arabia has spent over $1.36 trillion in its general budgets, plus scores of billions more in special additional programs. It is planning to spend another $228 billion during 2014. During those years, it launched thousands of projects. In 2013 alone, the Ministry of Finance reviewed 2,330 projects valued at $48 billion.
With so many projects started, administrative and technical capacities of both government agencies and the private sector have been stretched to the limit and beyond. As results, hundreds, perhaps thousands, of project are running behind schedule. There are no published precise figures for the number of unfinished projects, and that is one of the main complaints of Saudi economists and other professionals trying to assess the pace of implementation of government plans.
Slow implementation has been the bane of many ordinary Saudis who want to see ambitious development programs and projects actually completed in their regions of the continent-like country.
Custodian of the Two Holy Mosques King Abdullah has several times publicly admonished ministers and other officials about unfinished projects. His budget statement last week reflected the frustration many feel about the slow pace of implementation of his instructions.
He said, “We realize that what matters is not budget figures, but what they represent in reality as projects and services of quality that people can feel and enjoy. Therefore, all ministers and heads of government agencies have to implement the projects and programs for which they are responsible, and perform their duties, with precision and dedication, and without delay or dereliction of their duties toward the nation and the people.” To make sure that he is made aware of any difficulties on the way, he added, “Supervisory authorities have to report to us regularly about the pace and quality of performance, and any impediments on the way.”

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