Saudi fiscal position is exceptional

Saudi Arabia is basking in an “exceptional” fiscal euphoria because of strong oil prices which allowed it to record massive budget surpluses and rebuild its overseas assets, according to the Gulf kingdom’s largest bank. But the largest Arab economy and the world’s top oil exporter needs to put brakes on its spiralling public spending to offset any sudden fall in crude prices because of global economic uncertainty, National Commercial Bank said. In a study sent to 'Emirates24/7', NCB said a surge in crude prices above the country’s projected $54 oil price level allowed it to turn a budgeted SR40bn deficit into a massive surplus of nearly SR306bn in 2011. The surplus was achieved after actual revenue shot up to SR1,110bn compared with budgeted earnings of SR540bn. But expenditures also rocketed to nearly SR804bn compared to budgeted SR580bn. NCB said the surge in spending illustrated what it described as the fiscal resilience of the kingdom but also the numerous new near- to medium-term spending commitments of some SR500bn that were unveiled last year. The kingdom, which controls over a fifth of the world’s proven oil wealth, also invested heavily into future development, among other things through 2,600 projects, worth a combined SR148.3bn, signed with the private sector. “Overall, the Kingdom’s fiscal position is exceptional by global standards. The 2011 surplus is equal to some 10.4 per cent of GDP. But due to the increased fiscal largesse, public sector expenditure reached an almost European-style 37.2 per cent of GDP,” the study said. “Nonetheless, the strong fiscal performance has brought public indebtedness down to historically and internationally modest levels.” Its figures showed government debt is estimated to have decreased from around SR167bn at the end of 2010 to SR135.5bn – or only about 6.3 per cent of GDP – this year, far less than the 2011 surplus. The report said it believes there are “considerable expectations” that this state of affairs will trigger government-backed sukuk (Islamic bonds) financing on the grounds that public debt of 10 per cent of GDP had been previously indicated as a threshold for renewed government issuance. “Fiscal policy in 2012 is marked by considerable continuity even though it also reflects the exceptional strength the kingdom’s fiscal position,” it said. It cited government budget figures showing revenues are projected to be SR702 billion this year, an impressive 30 per cent above the 2011 budget plan, albeit clearly behind the actual estimated revenues for the year. It said this reflects a “continued commitment to cautious planning” with an oil price estimate still broadly comparable to last year’s $54 a barrel. Expenditures are projected to reach SR690bn a 19.0 per cent increase on the 2011 budget, which in turn translated into a small surplus of SR12bn. “In practice, however, the Saudi government has historically significantly overspent its budget, often by 15 per cent or more…..the need for fiscal discretion is considerable this year as well in the face of the uncertain global economic environment,” the study said. “Nonetheless, the continued resilience of oil prices, at least barring a major economic shock in Europe or elsewhere, should once again translate into a far more substantial surplus of more some 7.1 per cent of GDP.”