RIYADH, 11 December 2007 — Saudi Arabia’s budget for the 2008 fiscal year (Dec. 31, 2007-Dec. 30, 2008) was endorsed by the Council of Ministers on Dec. 10. It maintains the focus on enhancing infrastructure and as usual is based on a prudent oil price assumption. For 2007, restrained spending growth and high oil revenues caused another large budget surplus and the economy performed strongly. Chief Economist and Head of Research Brad Bourland of the Riyadh-based Jadwa Investment said the highlights of the budget are:
• A projected SR40 billion ($10.7 billion) budget surplus for 2008, based on revenues of SR450 billion and spending of SR410 billion. Defense and security, education and health care remain the main focus of government spending. Capital spending grows at a faster rate than current spending, reflecting the official policy of enhancing infrastructure.
• A budget surplus of SR178.5 billion in 2007, with revenues at SR621.5 billion and expenditure at SR443 billion. This was well above the surplus of SR20 billion projected in the budget because of substantially higher than budgeted oil revenues. Spending exceeded its target by SR63 billion (17 percent), broadly in line with the historical level of overspending. Spending was up only 13 percent on the 2006 level.
• Restraining the growth in government spending is important to tackling inflation. Given the run up in costs associated with capital spending, spending growth of 13 percent underscores the government’s seriousness in controlling inflation.
• Preliminary data indicates that 2007 was another year of strong economic performance. Real GDP growth slowed to 3.5 percent, which we believe was the result of lower oil production.
Nonoil sectors recorded robust growth, with total private sector GDP climbing by 5.9 percent.
Nonoil exports jumped by 24.9 percent and the current account surplus remained very high, at $92 billion. Inflation rate is put at 3.1 percent for the year, but this is inconsistent with the monthly data, which puts the average for the first 10 months of the year at 3.7 percent.
The budget once again appears to be based on a conservative oil revenue assumption. We think that oil production of 9.1 million barrels per day at a price for Saudi oil of $45 per barrel ($49 per barrel for WTI) is consistent with the oil revenue projection in the budget. As Jadwa expects Saudi oil to average $72 per barrel during 2008, it forecast a budget surplus of SR187 billion, well in excess of the budgeted figure, even though spending is likely to exceed its target.
