Business | Opinion
Saudi budget underestimates oil hikes
Saudi Arabia's budget for 2007 is conservative on revenue but generous on spending. Yet, actual revenues are expected to change eventually with developments in the oil market.
- Special to Gulf News
- Published: 00:00 December 25, 2006
Saudi Arabia's budget for 2007 is conservative on revenue but generous on spending. Yet, actual revenues are expected to change eventually with developments in the oil market.
The new budget is the biggest ever in Saudi Arabia. Projected figures estimate revenues at 380 billion Saudi riyals ($106.6 billion) and expenditure at 400 billion riyals ($101.3 billion), which allows a budget surplus of 20 billion riyals ($5.3 billion).
But, revenues are deliberately underestimated due to the unpredictability of oil prices, the single most important element of the budget. Oil receipts usually represent around three quarters of the treasury's income. The authorities have not revealed the price used in calculating oil income. However, economists noted that the price was approximately $35 per barrel.
According to Jeddah-based National Commercial Bank, the average price for Saudi Arabian crude is projected to stand at $55 per barrel, down from an estimated $61 per barrel in 2006.
The problem is that significant underestimation of revenues may undermine the credibility of budgetary statistics.
Undoubtedly, spending is the most critical part of the budget, which will be guarded carefully by observers. Officials have allocated a large chunk of funding for spending on important sectors. For example, nearly $26 billion will be spent on the education sector to meet the need to develop new educational institutions.
Schools
Certainly, Saudi Arabia badly needs to spend on education, if only to improve its standing on human development index (HDI). According to the report, issued by the United Nations Development Programme (UNDP), literacy rate in Saudi Arabia stands at 79.4 per cent, the worst in the Gulf Cooperation Council.
Therefore, officials need to invest in building new schools, especially for girls living in remote areas of the kingdom.
In the meantime, the Saudi government needs to invest in economic projects in order to meet its goal of diversifying away from oil as stated under the five-year development plan 2005-2010.
Additionally, spending is vital in overcoming the unemployment debacle. Current unemployment rate stands at approximately eight per cent. It may increase rapidly as more Saudi Arabian nationals enter the job market looking for suitable employment opportunities.
Nationals have their own expectations of jobs in terms of comfort and compensation. But Saudi Arabia's workforce is expanding beyond the natural population growth rates of about three per cent.
If recent history is any guide, actual income and spending will end up higher. There is plenty of evidence to support this suggestion.
Look at least at the figures of the fiscal year 2006. The budget was supposed to be balanced with revenue and expenditure standing at 335 billion riyals ($89.3 billion) each. But it is now expected that actual income is likely to stand at $175 billion, thereby registering a hefty 95 per cent growth rate versus the projected figure.
Additionally, authorities believe that actual spending is likely to stand $104 billion, a rise of 16 per cent. Thus, the budget is estimated to have registered a surplus of $71 billion. This is the fourth year in a row that the fiscal year ends in black following more than two decades of budgetary deficits.
Undoubtedly, the credit is for steady oil price. Like elsewhere in the region, the private sector in Saudi Arabia tends to take lead in investment.
- The writer is a Member of Parliament, Bahrain.
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