Dubai: The government of Saudi Arabia has allocated 580 billion riyals (Dh568 billion) in its national budget for 2011, up 7.4 per cent year on year.
The budget allocates 26 per cent of spending (150 billion riyals) to education and training. The next focus is on health and social affairs, allocating 12 per cent of spending (68.7 billion riyals).
The allocation to infrastructure in the budget amounts to around 9 per cent. Four new airports, new ports and railways are under construction to improve infrastructure, and support growth and development of the economy.
"We note that the authorities are always conservative on their revenue and expenditure projections, overspending by 22 per cent on average every year for the last 10 years. Consequently, we estimate that the total spending will rise by almost 6.5 per cent in 2011 to 667 billion," said Khatija Haque, an economist with Shuaa Capital.
Based on an average Opec oil price of $84 (Dh308.95) per barrel in 2011, analysts expect the Saudi budget will still record a substantial surplus (about 10 per cent of GDP) this year, even with the anticipated overspend.
Substantial surpluses
Furthermore, Saudi Arabia has likely recorded substantial surpluses in the balance of payments in 2010, which is reflected in the increase in Saudi Arabian Monetary Authority's (Sama) foreign exchange reserves that were $434 billion last November.
Despite various stimulus measures to strengthen the economy, Saudi Arabia was able to reduce its overall public debt in 2010 to 167 billion riyals from 225.1 billion in 2009, which is 10.2 per cent of GDP.
"With the increasing foreign assets held by the Saudi Arabian Monetary Authority [$531.9 billion by 2011], we estimate the country's public debt would further reduce by 2011," said Credit Suisse's analyst Mohammad Hawa.
Enviable position
Analysts say with foreign exchange reserves of around 100 per cent of its GDP, no external public debt, and domestic public debt of just 10.2 per cent of GDP by the end of 2010, Saudi Arabia is in an enviable financial position, with very little constraint on its spending capacity in the near term.
It has been argued that over the longer term, the increasing government expenditure is simply making Saudi Arabia more reliant on higher oil prices to break even, and thus more vulnerable to a negative oil price shock.
"While this is true, we argue that the type of spending being undertaken by the authorities [transport, education, health, utilities infrastructure] is appropriate and indeed necessary to increase the kingdom's capacity for growth in the long term. We believe that the infrastructure spending being undertaken is more likely to crowd in private sector investment over the medium term than crowd it out," Haque said.
