Saudi Arabia boosts spending

Dubai: Saudi Arabia has announced a 475 billion Saudi riyal ($126.7 billion) budget for 2009, increasing public spending by 15.8 per cent.

Analysts expect the increase in government spending despite a sharp decline in oil prices from the peak of $147 a barrel in mid-July to around $45 this week will help the kingdom to smoothen the impact of global financial crisis on the local economy.

The budget projects 2009 fiscal deficit at 65 billion riyals ($17.3 billion) or 3.4 per cent of GDP. Total revenues are projected at 410 billion riyals ($109.3 billion).

Stimulus package

Analysts see strong stimulus package embedded in 2009 budget and on a cum-ulative basis they expect the total fiscal stimulus to exceed $200 billion over the next five years. "We estimate that this is roughly 10 per cent of cumulative GDP in the next five years and 45 per cent of 2008 GDP," said Mohammad Hawa, a research analyst with Credit Suisse.

Economists and analysts believe that the easing of inflation leaves room for increased public spending. While growth may slow this year, the silver lining for Saudi Arabia is that inflation is clearly subsiding.

"The kingdom has battled with inflation over the past year and invoked a number of subsidies. But with food prices falling and money supply decelerating we can expect inflation to fall to seven per cent in 2009," said Mary Nicola, an economist with Standard Chartered Bank.

Announcing the 2009 budget, the Saudi Finance Ministry revealed the details of the kingdom's economic performance in 2008. The sharp increase in average oil prices was the major driver of the improved fiscal stance. The Finance Ministry said that revenues will reach 1.1 trillion riyals ($293 billion) by the end of 2008 which is 144 per cent above budget estimates. 2008 expenditure was 510 billion riyals, leaving a budget surplus in 2008 of 590 billion riyals.

Last year the Kingdom managed to reduce its public debt from 18.7 per cent of GDP in 2007 to 13.5 per cent of GDP in 2008 and the balance of payments surplus is up 45.8 per cent.

The Finance Ministry expects a different picture in 2009.

With the sharp decline already seen in oil prices, the government will increase expenditure on projects in 2009; they plan to spend 225 billion riyals or 55 per cent of its revenue on development projects.