Kingdom Unveils $228b Plan with Modest Rise in Spending

by Irfan Iqbal Khan | Apr 03, 2014
SAUDI ARABIA announced its 2014 state budget on December 23, of $228 billion, slightly up from the $218.7 billion that had been set aside for 2013; thus projecting that spending of 2014 would rise a modest 4.3 percent over 2013’s planned amount. Spending and revenues are each projected to be SR855 billion ($228 billion); that compares with planned expenditure of SR820 billion and planned revenues of SR829 billion for 2013. Experts see the 4.3 percent rise in planned spending as far smaller than the 19 percent leap envisaged by the 2013 budget plan, and the lowest increase since the 3.5 percent in 2003. The International Monetary Fund is expecting the Kingdom’s economy to grow by 3.6 percent and 4.4 percent in 2013 and 2014 respectively, after expanding by 5.1 percent in 2012. Saudi Arabia has been using a part of its large windfalls of oil revenues to repay its public debt, which has dropped to SR75.1 billion ($20 billion), or 2.7 percent of its gross domestic product, according to the ministry statement. Public debt stood at SR98.8 billion ($26.3 billion) at the end of 2012.

The government has enough reserves to pay off the entire debt, yet it opts out of such direction given the low cost of servicing debt. The preference is to finance expenditure plans at home or to diversify investments abroad. According to NCB economists, a certain level of sovereign debt is necessary as a monetary tool to manage money supply and as a benchmark for pricing corporate bonds and sukuk. The lower debt level on a global scale was cited by S&P and Fitch as a reason for affirming the Kingdom’s rating at AA– with a positive outlook in May and September. Despite the decline in overall debt, SAMA opted out from the respite mode this year, issuing T-bills worth SR34 billion, the largest since 2010, to mop excess liquidity. This increased activity from the regulator coincided with credit growth in 1Q that was near four-year highs.

In his address to the nation after unveiling the budget, King Abdullah Bin Abdul Aziz said massive spending will continue in sectors that support sustainable development and create more jobs for citizens. This budget reflects the Kingdom’s huge economic progress. It also gives glad tidings of a bright future. “We understand this is less than the ambitions of our citizens and will continue our endeavors to provide a decent living for them. We’ll continue our efforts to reform the education system that plays an important role in human resource development as well as to correct the imbalance in labor market to create more jobs for citizens,” the King said.

Spelling out other strategies, he said: “We’ll strengthen the link between the annual budget and five-year plans, ensure sound implementation of public projects, balance the requirements of present and future generations, and make optimum utilization of natural resources.” He stressed the need for carrying out the budgeted projects in the best manner for enhancing the welfare of citizens. The King urged all ministers to carry out their projects without any negligence. He instructed monitoring authorities to report regularly about the performance of various government departments. The Minister of Finance said that in terms of fixed prices, the Gross Domestic Product (GDP) is expected to score a 3.80 percent growth compared to a 5.81 percent last year. The oil sector is expected to decrease by 0.61 percent as the governmental sector is expected to grow by 3.73 percent and the private sector by 5.50 percent. The private sector’s contribution to the GDP will reach 58.75 percent. All economic activities comprising the domestic product for non-oil have achieved positive growth. The real growth in the transformable non-oil industries is estimated at 4.72 percent, the communications, transport and storage 7.20 percent, construction and building 8.11 percent, wholesale and retail trade, restaurants and hotels 6.16 percent and capital services, insurance, real estate and business services 4.86 percent.

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