JEDDAH: Saudi Arabia yesterday announced an SR475 billion ($126.7 billion) economic stimulus budget for 2009, allocating more money for education and increasing public spending by 15.8 percent (SR65 billion), despite a sharp decline in oil prices that have dipped to $43 a barrel.
Custodian of the Two Holy Mosques King Abdullah, who unveiled the Kingdom’s largest-ever budget during a Cabinet session at Khoraim Gardens, said a record SR225 billion has been allocated for new projects and SR122 billion is slated for education, training and scholarship.
The king said the budget allocation for new projects in 2009 was 36 percent more than the allocations made in 2008.
“The amount is three times more than the allocations made for new projects in the beginning of the 8th Five-Year Development Plan four years ago,” he said.
The 2009 budget projected revenues at SR410 billion, leaving a deficit of SR65 billion.
The Finance Ministry said Saudi Arabia was expected to make a record surplus budget of SR590 billion in 2008 with revenues projected at SR1.1 trillion and expenditures at SR510 billion.
The new projects that received budget allocations in 2009 include Princess Noura bint Abdul Rahman University, the largest women-only university in the world, and King Saud University for Health Sciences and their branches.
The new budget has also earmarked SR52 billion for health services and social development, SR49 billion for water, municipality, agriculture, industry and infrastructure, and SR19 billion for transport and communication.
“We have allocated large amounts for new road projects and for the maintenance of existing roads,” the king said.
He urged ministers and officials to implement the projects approved by the budget within the specified time in order to enhance services required by citizens and residents and boost the Kingdom’s overall development.
Addressing the budget session of the Cabinet, Finance Minister Ibrahim Al-Assaf said the Kingdom’s gross domestic product (GDP) in 2008 was expected to grow 22 percent to SR1.75 trillion in current prices and 4.2 percent in stable prices. The oil sector was expected to grow 34.9 percent and private sector by 8 percent in current prices.
Preliminary estimates indicate that the Kingdom’s public debt will drop to around SR237 billion at the end of fiscal year 2008, which represents 13.5 percent of projected GDP for 2008 compared with 18.7 percent in 2007.
Referring to the new budget allocation for education, Al-Assaf said SR9 billion would be set aside for King Abdullah Education Development Project and for the creation of the Education Development Holding Company. Allocations have also been made for 1,500 new schools. The National Plan for Science and Technology will receive SR8 billion.
Under the new budget, 86 new hospitals with a total of 11,750 beds will be established while the Saudi Red Crescent Society would be transformed into an authority.
“Allocations have also been made for poverty-reduction programs,” the minister said.
Al-Assaf said budget allocations have been made for the two industrial cities in Jubail and Yanbu. The Real Estate Development Fund would receive a shot in the arm through replenishment of resources worth SR25 billion over the next five years.
The government will also deposit SR10 billion in the Saudi Credit Bank. The public lending institutions would disburse SR40 billion among the beneficiaries of the lending programs.
Economy and Planning Minister Khaled Al-Gosaibi said the new budget that focuses on an economic stimulus plan was the best means to offset the impact of the global financial crisis and the economic recession. “The large-scale public spending of this size will play a positive role in increasing demand for goods and services and expanding liquidity to finance consumption, production and investment.”
Economic analysts described the budget as market-friendly and said it would boost the Kingdom’s economy.
“The Saudi economy is one of the most resilient among the world economies. It is well positioned for growth despite the global recession. The priorities given in the budget seem to address the challenges facing the economy,” said Adnan Soufi, managing director of SEDCO Financial Investments Group.
Faisal Alsayrafi, managing director and CEO of the Jeddah-based Financial Transaction House (FTH), was also bullish about the budget. “If we look at the global economy and what’s happening worldwide, we would definitely find ourselves in a much better situation,” he said.
He said the projected deficit of SR65 billion was due to severe turbulence in oil prices and other factors. However, the generous government spending on mega projects would boost the economy. He referred to King Abdullah’s earlier announcement that the government would spend $400 billion on development projects in the next five years.
“It is true that the deterioration in oil prices has impacted us. However, favorable oil prices in the past did help us build a strong reserve to be used as a cushion in times of need,” he added.
Howard Handy, general manager and chief economist of the Riyadh-based Samba Financial Group, said the government faced many challenges while drawing up the budget because of the uncertainty surrounding oil prices. “For 2009, the government faces the added complication of a much weaker domestic investment environment stemming from the impact of global credit dislocations and declining oil prices,” he said. In 2009, Samba expects the government to increase spending by around 10 percent over this year in its bid to bolster confidence and keep infrastructure projects on track. “This is precisely the role that fiscal policy should play in such an unsettled economic environment,” Handy said.
On the recurrent spending front, cooling inflation should help ease pressure on subsidy commitments. Yet with population growth continuing at around 3 percent and a weakened private sector unable to absorb many new job market entrants, upward pressure on current spending will remain considerable, he said.
“The outlook for 2010 is hazy, but a gradual rebound in oil prices and a small gain in Saudi crude production should allow revenue to rise by around 35 percent. Spending will also be stepped up by around 13 percent, but a return to a small surplus of SR19 billion, or 1 percent of the GDP, is likely,” Handy added.
There was no immediate impact of the budget on the Saudi stock market. That was because the budget announcement came much after the market closed. The Tadawul All-Share Index (TASI) closed 26.04 points down at 4,748.04 with turnover of SR4 billion.
