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Saudi to slash 2009 spending as budget deficit forecast
2008-12-22
RIYADH (AFP) - The Saudi government said on Monday that it will spend more than it earns next year, despite cutting back its plans, as plummetting oil prices are likely to carve a big chunk out of revenues. The oil-rich kingdom vowed to maintain spending on major projects, as the first budget deficit since 2002 follows a record year in 2008, when a leap in oil prices produced a budget surplus double the projected level. "In spite of the decline in oil price during the last part of 2008, this year's budget will continue to focus on optimizing the use of available resources," the ministry of finance said in its budget statement. The crash in the oil prices to between 40 and 45 dollars a barrel on Monday from a July peak above 147 dollars has raised questions over whether the world's largest oil exporter can sustain hundreds of billions of dollars worth of ambitious mega-projects announced over the past three years. The ministry said the government will give priority to "projects that ensure sustainable and balanced development as well as more employment opportunities and job creation." Riyadh plans to cut budget spending by 6.9 percent to 475 billion riyals (127 billion dollars) in 2009 from a projected 510 billion riyals (136 billion dollars) in 2008, but nevertheless expects to post a a 65 billion riyals (17.3 billion dollars) shortfall. The predicted deficit comes after Saudi Arabia piled up its best-ever surplus of 590 billion riyals (157 billion dollars) in 2008. With government spending the main driver in the Saudi economy, the plan to go into the red suggests Riyadh will tap into its massive foreign reserves to forestall a sharp slowdown next year as the global economic crisis affects the kingdom. "The budget will give particular attention to infrastructure and social services, especially education, health, social affairs, municipal services, water and sewage, and roads," the ministry said. Economists downplayed the projected fall in spending from the 2008 target, saying that Riyadh always spends more than it budgets, including this year when actual payouts were far higher than the budgeted 410 billion riyals. "They always overspend, so we assume actual spending for next year will be higher," said Paul Gamble, head of research at Jadwa Investment in Riyadh. Gamble said the budget appears to be aimed at Saudis worried over the fall in oil prices and the impact on the Saudi economy of the global financial crisis. "For the guy in the street, this will really assure him that the government hasn't been affected by the collapse in oil prices," he said. But the key will be the course of oil prices. Jadwa calculates that the 2009 budget is calculated on a basis of the Saudis exporting an average of 8.1 million barrels a day of oil at an average market price for benchmark West Texas Intermediate crude of 48 dollars a barrel. In its statement the Finance Ministry said economic growth in 2008 should hit 4.2 percent, but it made no projection for 2009. Last week Riyadh Jadwa predicted that Saudi economic growth will slow to 1.5 percent in 2009, dented by the US financial crisis and the global economic meltdown. However, the company said the government's net foreign assets, put at 433 billion dollars at the end of September, "give Saudi Arabia an advantage over most other countries in alleviating the impact of the extreme financing pressures." "They mean it can push ahead with strategic projects such as key infrastructure, oil, power and water, and support the private sector where necessary."
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