RIYADH, 23 June 2005 — The Kingdom’s oil revenues will grow 15 percent this year to SR398 billion ($106 billion) on the back of high global prices, setting the stage for a record budget surplus, a leading Saudi bank said.
National Commercial Bank (NCB) said the combination of high prices and increased production will push oil income in the world’s biggest crude exporter well beyond the conservative SR231 billion forecast in the Saudi state budget.
NCB’s first quarter report was prepared before world oil prices hit new records this week close to $60 a barrel. Non-oil revenue this year of SR49 billion will push total government income to SR447 billion, the bank said.
Even with predicted government overspending of SR30 billion, which would raise expenditure to SR310 billion, Saudi Arabia is headed for a record surplus of SR137 billion, according to the bank’s forecast. That would be the third surplus in a row after 20 years of nearly continuous deficits.
“Oil prices in 2005, due to tight oil supply, could turn out to be higher than what was implicitly estimated in the budget, thereby giving the government more confidence to even surpass its planned spending while aiming to reduce the public debt,” NCB said in its report.
Saudi Arabia has reined in public debt to around 66 percent of gross domestic product from 119 percent five years ago. It has also used its surpluses over the last two years to build up foreign reserves and increase spending on infrastructure projects neglected during years of low oil prices.
The bank said a two-year upswing in stock market and real estate prices should continue through 2005, as long as oil prices remain buoyant and the government is able to contain militant attacks which scared off some investors last year.
“Moreover, lagged expenditure effect of the rising public spending in 2004 is expected to continue well into 2006 as new projects and public programs get commissioned this year,” NCB said in its report.
It predicted nominal GDP growth of 9 percent this year, down from 16.9 percent last year. Private sector GDP growth should reach 7.0 percent after 6.8 percent last year, it added.
