Fiscal performance
Ministry of Finance in Saudi Arabia presented the
national budget in which it projected the government revenue to be SR702
billion and expenditure to be SR690 billion for the year 2012. The actual
revenue and expenditure for the year 2011 has been estimated at SR1.11 trillion
and SR804 billion creating a surplus of SR306 billion. In addition to the
government finance, the ministry has put forward real GDP growth estimates at
6.8 percent for the year 2011. In nominal terms GDP is estimated to have grown
by 28 percent. Trade surplus has been estimated to be at a record level at
SR915 billion whereas current account to be at SR598 billion.
Budget for 2012
The government has budgeted total revenue of SR702
billion and total expenditure of SR690 billion resulting into a budget surplus
of SR12 billion for the year 2012. In the statement accompanied the budget
government envisages the focus of the national budget remains on the
development process and ensuring the investment programs remain conducive to
strong and sustainable growth. The budget puts emphasis on employment
opportunities and job creation along with focus on education, healthcare and
social services.
Expectation
In line with the government budget, Al-Rajhi Capital
expects decline in both revenue and expenditure in 2012 compared to 2011 mainly
on account of expected decline in oil sector and one time expenditure incurred
by the government this year. Total revenue is expected to decline from an
estimated level of SR1110 billion in 2011 to SR890 billion in 2012 mainly due
to expected decline in oil revenue. Total expenditure is also expected to
decline from an estimated level of SR804 billion in 2011 to SR746 billion in
2012 mainly due to decline in the current expenditure from SR604 billion to
SR512 billion. Therefore, fiscal surplus is also expected to shrink to SR144
billion next year.
The expectation of lower revenue is based on belief that
average oil prices is going to be lower at $95 per barrel as well as oil
production in Saudi Arabia. On expenditure side, expenditure in 2012 to be
lower because of one-time expenditures such as 2-months 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 billion-100 billion in 2011.
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 this year. This is likely to be the main priority for
this year's budget. Allocation to building and expansion of hospitals will be
another important focus for the budget.
Comparison
The oil boom during 1970s and 2000s (especially since
2003) provided government with much higher revenue than in 1980s and 1990s.
During 1970s and 2000s, government budget was largely in surplus. However, the
magnitude of oil boom of these two decades was quite different from government
budget point of view. Economic growth was unprecedented resulting into multiple
times rise in government revenue and expenditure in 1970s. Although economic
growth and rise in government revenue was robust during 2000s, it could best be
described as muted when compared to 1970s growth, the report said.
The average annual growth in nominal GDP was 44.3 percent
on the back of sharp rise in crude production and oil price during 1971-80.
Crude production increased from 4.77 mbpd in 1971 to 9.9 mbpd in 1980 even as
crude price jumped from $1.65 per barrel to $28.67 per barrel during the
period. This translates into the fact that crude production almost doubled and
crude price increased slightly by more than 17 times. The average annual growth
of crude production was 11 percent punctuated by decline in only 1975 and 1978.
On the other hand the average annual growth in nominal GDP was just 9.6 percent
and average annual oil price rise was 14.1 percent during 2001-10. Average
crude production during the decade was 8.54 mbpd. Average annual growth of crude
production was just 1 percent filled with decline in 2001, 2002, 2006, 2007 and
2009.
The sharp difference in movement of macroeconomic
variables during 1970s and 2000s was also reflected in the government budget.
Government revenue increased at an average rate of 50.2 percent annually during
1970s whereas average annual growth in government expenditure at 48.3 percent
closely followed the revenue growth during the period. Fiscal surplus averaged
at 14.3 percent of GDP annually during the same period. On the other hand,
average annual growth in revenue was 17.5 percent and expenditure was 11
percent during 2000s. Fiscal surplus was on an average 9.2 percent of GDP
annually during this period.
Growth in constituents of government revenue and
expenditure has also been markedly different. Growth rates of oil and other
revenues were not much different during 1970s even as growth in current and
capital expenditure was also quite close. Average annual growth in oil revenue
and other revenue were 56.3 percent and 47.2 percent respectively during the
period. On the expenditure side, current and capital expenditure grew at
average rates of 47.7 percent and 51.8 percent respectively. Average share of
capital expenditure in total expenditure was almost half. However, these rates
diverged significantly in 2000s. Average annual growth in oil revenue was 19.7
percent whereas it was just 7.4 percent for other revenues. Similarly, there
was large divergence between current and capital expenditure where the previous
grew at an average annual rate of 7.9 percent and later grew at 29.6 percent.
Even though capital expenditure increased much faster compared to current
expenditure, average share of capital expenditure was 19.9 percent during the
period.
From fiscal perspective, Al-Rajhi Capital said the
comparison of above two decades suggests that though two periods were starkly
different quantitatively, they were different qualitatively as well. Although
share of oil revenue in total revenue was higher during 1970s, growth in
revenue was more balanced as growth in oil and other revenues was similar.
However, focus of the expenditure during 2000s has been on creating more
productive capacity in the economy as capital expenditure growth was much
higher compared to growth in current expenditure. Moreover, another remarkable
achievement during 2000s has been sharp reduction in public debt to negligible
(10.2 percent of GDP in 2010) and foreign exchange reserves soared to more than
100 percent of GDP.
Inflation
Although headline inflation seems to have remained at 5.2
percent year-on-year in November, the same level as in October, looking at two
decimal points provides slightly different picture. It shows that inflation has
eased almost one-tenth of a percent from 5.25 percent year-on-year in October
to 5.16 percent year-on-year in November. On the monthly basis, it declined
from 0.5 percent in October to 0.2 percent in November. This suggests that the
pace of inflation has moderated in the last month.
The growth in inflation components has been mixed. On the
one hand food inflation has accelerated to 4.2 percent year-on-year in November
from 3.2 percent year-on-year in October. However, it remains at almost
two-year low even after 1 percent rise. Home furniture inflation also
accelerated to 2.9 percent year-on-year from 2.5 percent year-on-year during
the same period. Rent component remained flat at 8 percent year-on-year in the
last month. On the other hand, other expenses and services eased from high rate
of 12.3 percent year-on-year in October to 9.4 percent year-on-year in
November.
Money supply growth
The Al-Rajhi Capital report said measures of money supply
witnessed a moderate acceleration in October. Growth rate of M1 accelerated
marginally to 23.5 percent year-on-year in October compared to 22.9 percent
year-on-year in September. The acceleration was mainly due to faster growth in
currency outside bank whereas growth in demand deposit was almost flat at 22.6
percent year-on-year in October. Growth rate of M2 which includes M1 and
"time and savings" deposits accelerated to 15.8 percent year-on-year
in October mainly on account of smaller decline in time and savings deposits.
Note that time and savings deposits declined by 0.5 percent year-on-year in
October compared to a decline of 2.9 percent year-on-year in the previous
month.
Growth rate in M3, the broader measure of money supply,
jumped from 11.9 percent year-on-year in September to 14.4 percent year-on-year
in October. The higher jump in growth rate of M3 compared to growth rates of
other measures of money supply is due to jump in "other quasi
monetary" deposits. The deposits jumped from -1.0 percent year-on-year in
September to 7.1 percent year-on-year in October.
The average growth in money supply in the first ten
months of the current year has been higher than the rates in 2010. Average
growth rate in M1 has been 24.8 percent in 2011 (Jan-Oct) compared to 19.9
percent in 2010. M2 has grown at an average rate of 14.7 percent in 2011
(January-October) compared to 9.3 percent in 2010. Finally, M3 average growth
has been 13.1 percent this year compared to just 5 percent in the previous
year.
Credit growth
Credit growth to private sector by commercial banks
accelerated to the highest level in October this year. Loans, advances and
overdrafts increased by 10 percent year-on-year in October, highest in 2011.
Banks' total claims on private sector which includes loans, advances,
overdrafts, bill discounted and investments in private securities increased by
9.8 percent year-on-year in the month.
The growth rate of private sector lending by commercial
banks has been better in 2011 as average growth in loans, advances and
overdrafts (direct lending) has been 7.6 percent in January-October period
compared to 4.7 percent for the entire 2010. Similarly, growth in bank's total
claims on private sector has averaged at 7.8 percent in January-October 2011
compared to 5.7 percent in 2010.
SAMA assets
Total reserve assets of Saudi Arabian Monetary Agency
(SAMA) continued to grow in October though at slightly lower pace. Total
reserve assets reached SR1.97 trillion ($525 billion) in October which was
higher by 21 percent compared to October 2010. Growth in September was 22.7
percent year-on-year. Reserve position in the IMF jumped 129 percent
year-on-year in October though it grew just 1.6 percent on monthly basis. Two
large components of the total assets, foreign currency and deposits abroad and
investment in foreign securities, increased 21 percent year-on-year.
Reserve assets have increased from SR1.67 trillion at the
end of 2010 to SR1.97 trillion at the end of October 2011, an increase of SR301
billion in 10 months compared to just SR131 billion increase in the entire
2010.
