Saudi Arabia - Budget 2009 - Jadwa Forecast

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December 23, 2008

Saudi Arabia's 2009 Budget:
Jadwa's Forecast

Editor's Note:

King Abdullah presented the Kingdom's 2009 budget yesterday. It will be the largest budget in Saudi Arabia's history with $126.7 billion in expenditures based on revenues of $109.3 billion and a deficit of $17.3 billion. The 2009 budget, according to a Saudi Gazette report, "will continue to focus on: optimizing use of available resources giving priority to projects that ensure sustainable and balanced development as well as more employment opportunities and job creation, infrastructure and social services, especially education, health, social affairs, municipal services, water and sewage, and roads, projects related to science and technology and e-government capital expenditures to boost economic activities and enhance the prospects of economic growth."

This SUSRIS IOI provides a report from Jadwa Investment's Chief Economist, Brad Bourland, released overnight following the unveiling of the 2009 budget. In it, among other analyses of the budget, Jadwa forecasts a SR89 billion budget surplus for the coming budget year, based on their forecast of $66 per barrel of Saudi crude and production of 8.1 million barrels per day.

Elsewhere in your inbox this morning you will find an overview of the budget release news in the form of an article by Khalil Hanware and P.K. Abdul Ghafour of Arab News and, in a separate emailing, analysis by SABB's John Sfakianakis ["An expansionary budget that builds confidence"], which also appeared in Arab News. [Links below]

We also suggest you review the linked articles, from SUSRIS and elsewhere the follow below for more background information on Saudi budget, especially Brad Bourland's report on the 2008 budget.

Saudi Arabia's 2009 Budget:
Jadwa's Forecast

Click here to read the complete Jadwa Investment document, "Saudi Arabia's 2009 Budget." The overview of the Jadwa Investment's report follows:

Saudi Arabia's 2009 Budget

The government's budget for the 2009 fiscal year (31 Dec 2008-30 Dec 2009) was endorsed by the Council of Ministers on December 22. It was drawn up during a period of extreme financial turbulence that has seen the global economy slip into recession and oil prices fall by over 80 percent since July. Nonetheless, the government has increased spending compared with the budgeted total for 2008 in order to push ahead with its investment program. The highlights are:

A deficit of SR65 billion ($17 billion) is projected, based on revenues of SR410 billion and spending of SR475 billion. This is the first time the government has budgeted for a deficit since 2004. Education, healthcare and defense remain the main focus of government spending. Capital expenditure is projected to rise sharply, implying a very small increase in current spending.
The increase in budgeted spending reaffirms the government's commitment to proceed with its investment program. We think this is sensible given that lower project costs and raw material prices make the investment plans more affordable. It also sends an important signal to investors about the underlying health of the economy and the strength of government finances and should lift confidence, bolstering the stock market. The government's huge stock of net foreign assets (SAMA's net foreign assets stood at $44 billion at the end of October) mean that it will have no problem financing a deficit.
A record budget surplus of SR590 was recorded in 2008, with revenues of SR1,100 billion versus expenditure of SR510 billion. This is well in excess of the SR40 billion surplus projected in the budget because oil revenues were far greater than budgeted. Government spending grew by a modest 9 percent.
Preliminary data suggest that economic performance was reasonable in 2008. Real GDP growth picked up to 4.2 percent owing to a rise in oil output. However, non-oil private sector growth slowed to 4.3 percent, the weakest performance since 2003. Bumper oil revenues helped lift the current account surplus to a record $151 billion, though non-oil exports rose by only 10 percent. Average inflation is estimated at 9.2 percent.

We think that oil production of 8.1 million barrels per day at a price for Saudi oil of $44 per barrel ($48 per barrel for WTI) is consistent with the oil revenue projection in the budget. While this is not as conservative as past budgets (WTI is currently $32 per barrel) we still think that the revenue total will be exceeded. Based on our average price forecast for Saudi oil of $66 per barrel during 2009, and factoring in spending in excess of the projected level, we expect a budget surplus of SR89 billion.

To read the rest of the Jadwa Investment document, "Saudi Arabia's 2009 Budget" follow this link.

Source: Jadwa Investment

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