January 2009

After seven years of budget surpluses, Saudi Arabia will post a budget deficit of US$17 billion in 2009. This comes a year after the country recorded a budget surplus of US$157 billion fueled primarily by record high oil prices. The timing of the deficit is in line with worldwide expectations of higher government spending to spur growth.

Custodian of the Two Holy Mosques King Abdullah, who unveiled the Kingdom’s largest-ever budget, said a record US$60 billion has been allocated for new projects and US$32 billion is slated for education, training and scholarship. The above allocation is part of a US$400 billion investment plan for five years. The increase in government spending is expected to act as a stimulus to boost business confidence, ensure foreign investment flows into the Kingdom and present Saudi Arabia as a 'safe haven' for future investments.

Government spending will focus on education, manpower development, healthcare, social affairs, water, agriculture, transportation, telecommunications and infrastructure developments while factors like easing of inflation, low debt to GDP ratio, strong banking system and domestic demand will largely facilitate the Kingdom with its robust economic growth plan for 2009.

The Kingdom is ranked 16th among 181 countries as per World Bank 2009 Report on Ease of Doing Business and is No. 1 in the MENA region. Saudi Arabia's hydrocarbon dependent economy has weathered the financial storm better than many. While economic diversification takes place and GDP focus shifts away from 'Black Gold', the Kingdom remains one of the resilient economies of the globe. However, the country is not immune to global financial crisis and the government has taken timely measures to step in and inject much needed liquidity into the domestic market.

Will 2009 be another year when Saudi Arabia's estimates for oil based revenues turns out to be conservative and as a result ends up with a budget surplus? As events unfold and the effects of the expansionary budget for 2009 trickles down, it is expected that the region's largest economy will emerge stronger than ever as a dominant player in the region with global reach.