Bloomberg News

Saudi Arabia Forecasts $3.2 Billion Surplus in 2012 Budget

December 27, 2011

(Adds analyst comment in fourth paragraph.)

Dec. 26 (Bloomberg) -- Saudi Arabia, the world’s top oil exporter, forecast a budget surplus of 12 billion riyals ($3.2 billion) next year as the kingdom boosts planned spending while investing to create jobs.

The government plans to spend 690 billion riyals, 19 percent above its target for this year and below actual spending of 804 billion riyals, the Riyadh-based Finance Ministry said on its website today. Revenue next year is projected at 702 billion riyals, above last year’s target of 540 billion riyal and less than this year’s actual revenue of 1.11 trillion riyals.

King Abdullah announced a $130 billion spending plan in the first quarter to build homes and combat unemployment of 10 percent. The program comes amid concerns Europe’s sovereign-debt crisis will hurt global growth and amid a wave of popular uprisings in the Middle East, triggered in part by unemployment.

“Saudi Arabia tried to give more benefits to its citizens at a time when discontent was spreading through the region,” Ted Karasik, director of research at the Dubai-based Institute for Near East and Gulf Military Analysis said in a phone interview from Dubai. “This is part of an adjustment to Saudi’s budgetary needs because of subsidies that were given when the Arab Spring took off.”

The country had a surplus of 306 billion riyals this year, compared with the 40 billion-riyal deficit foreseen in the budget announced a year ago. The kingdom’s public-sector debt will fall 18.8 percent to 135.5 billion riyals this year, the ministry said. The king ordered the transfer of 250 billion riyals from that surplus to the account of the Saudi Arabian Monetary Fund to finance the construction of 500,000 housing units approved in March, the Finance Ministry said.

Conservative Estimates

Saudi Arabia uses conservative estimates of oil prices when planning its budget. Combined with additional spending that can be announced as the year goes on, that means outcomes often depart significantly from approved budgets, the International Monetary Fund said in a review of the economy in September.

King Abdullah announced a government spending package for social and housing projects after youth-driven uprisings toppled leaders in Tunisia, Egypt and Libya this year.

“An increase in oil prices and a surge in production, stemming from the outage to Libyan crude, was enough to more than offset an extraordinary spike in government spending,” James Reeve, senior economist at Samba Financial Group in London, said in response to e-mailed questions.

Saudi Arabia increased oil supply to help meet rising demand after exports from Libya collapsed during the uprising against Muammar Qaddafi.

‘High Expenditure’

The government has “tended to err on the side of high expenditure as a way to support economic activity in the face of an uncertain global situation,” Jarmo Kotilaine, the chief economist at National Commercial Bank, said in response to e- mailed questions. “The problems in the euro zone above all are endemic and would justify continued caution.”

Economic growth is expected to be 6.8 percent this year, the Finance Ministry said.

Growth in the kingdom will drop to about 3.8 percent in 2012 from 6 percent this year on weaker demand for energy from Europe and the U.S. and reduction in government spending, Kai Stukenbrock, director of sovereign and international public finance ratings at S&P, told reporters in Dubai on Nov. 14.

Education Spending

The budget includes 265 billion riyals for development projects and 168.6 billion riyals for education and training, the ministry said.

The government this year needed a break-even oil price for the budget of around $85 to $90 a barrel, NCB’s Kotilaine said. “This figure has tended to edge higher every year,” he said.

Crude traded for $99.68 a barrel on the New York Mercantile Exchange on Dec. 23. The ministry didn’t say what price it forecast for oil when preparing next year’s budget.

Saudi Arabia has prepared a plan to “rebuild and modernize” its armed forces as the kingdom confronts regional risks, the military chief of staff, General Hussein al-Qubail, said Nov. 13.

Saudi Arabia has 233,500 active military personnel, including 75,000 in the army and 13,500 in the navy, according to data from the International Institute of Strategic Studies. Troops from Saudi Arabia and other Gulf nations entered Bahrain in March to help crush protests by the Shiite-led majority.

“Defense and security will account for the largest share of planned spending, but that’s also not published,” Gamble said.

The kingdom’s Tadawul All Share Index advanced to the highest level in almost five months ahead of the budget report. The 150-company gauge gained 0.5 percent to 6,414.47, trimming its yearly loss to 3.1 percent.

--Editors: Louis Meixler, Sheldon Reback

To contact the reporter on this story: Glen Carey in Riyadh at gcarey8@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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