Saudi Arabia's budget released on the 14^th of December projects a 14% increase in government expenditure next year to a record level of SR540 billion (US$144 billion) according to a report by Banque Saudi Fransi. The intention is to stimulate the economy with particular emphasis on education and infrastructure which are budgeted to rise by 13% and 30% respectively.

Given that oil prices have hovered around $70 over the last 12 months this has enabled Saudi Arabia to comfortably sail through these difficult times with relatively little fiscal strain. The economy is expected to post a deficit of SR70 billion (US$18.6 billion) during 2010 after an anticipated deficit of SR45 billion (US$12billion) during the current fiscal year. The assumptions on the average crude price remain conservative with an oil price of $44 per barrel at a production of 8.5 million barrels a day.

Saudi has focused heavily on capital expenditure spending rising seven-fold during 2000-2008. During the same period current expenditure rose only 79%. The aim is to build an efficient and more productive economy in the long run but also to provide a stimulus for job creation through investment in infrastructure and human resource development. The impact on the private sector is still to be determined and the report adds that the multiplier effect can only be unlocked only if small and medium-sized businesses become bigger participants in the economy.

Allocations to the priority sectors as highlighted by the report are: Education and training allocated SR137.6 billion (US$36.7 billion); Health and social affairs allocated SR61.2 billion (US$16.3 billion); Water, agriculture and infrastructure allocated SR46 billion (US$12.3 billion); Transportation and Telecommunications allocated SR23.9 billion (US$6.4 billion); Municipal services allocated SR21.7 billion (US$5.8 billion).

The report analyzes the dependence of oil on state revenues over the next 10 years. It states that oil exports will continue to provide 89% of government revenues. This is expected to decline to 84% in 2015 and 81% in 2020. Hence, the non-oil sector is expected to contribute less than a fifth to public revenues in 2020 and the government will continue to remain vulnerable to fluctuations in oil prices as it supports its growing spending needs.

In summary, Saudi Arabia has raised its expenditure target by 13.7% to SR540 billion (US$144 billion) in 2010 from SR475 billion (US$126.6 billion) in 2009, marking the largest budget outlay in the country’s history.

Source: Report on Saudi Budget by Banque Saudi Fransi