(MENAFN - Arab News) Saudi Arabia on Monday unveiled the largest budget in its history, projecting expenditures at SR540 billion ($144 billion) and revenues at SR470 billion ($125 billion). It has allocated SR260 billion for new welfare projects and SR137 billion for education.
Custodian of the Two Holy Mosques King Abdullah, who chaired the Cabinet's budget session at Al-Yamamah Palace in Riyadh, urged ministers to carry out the projects as quickly as possible without fail and without wasting the funds allocated for them.
In an address to the nation on the occasion, King Abdullah said the national budget for 2010 is 14 percent more than that of 2009. "It has taken into consideration the needs of the national economy as well as the global economic situation," the king added.
In his speech, which was delivered on his behalf by Abdul Rahman Al-Sadhan, secretary-general of the Council of Ministers, King Abdullah said the budget was designed to achieve sustainable development in the Kingdom despite falls in oil exports and prices. "We'll channel our financial resources to areas which require more spending in order to boost economic growth and development, make our economy more attractive for investment, and create more jobs for Saudis," the king said.
The budget allocations for the education sector cover 1,200 schools; new universities in Dammam, Al-Kharj, Majmaa and Shaqra; completion of the campuses of existing universities; and the establishment of new technical colleges and vocational institutes.
The budget has allocated SR61 billion for health and social development, the king said, adding that eight new hospitals would be constructed and 19 existing hospitals expanded during the fiscal year. A number of sports clubs and sports cities will also be established.
The municipal service sector has received SR22 billion, and the transport and telecom sector SR24 billion. Allocations for the water, industrial and agricultural sector amounted to SR46 billion, which included funds for infrastructure projects required by mineral industries in Ras Al-Zour.
King Abdullah said the government would continue its efforts to develop judicial facilities and implement a national plan for science and technology. State-owned lending organizations would continue to provide loans for agricultural, real estate and industrial projects. "The budget has envisioned achieving balanced development of the Kingdom's provinces," he said.
King Abdullah urged ministers to implement the budget without any negligence, adding that it should be carried out seriously, sincerely and speedily. "I know that some projects have not been implemented yet and have been wasted. I request you to inform me if you find any negligence on the part of anybody, including the minister of finance," the king told the Cabinet.
Speaking about the Kingdom's economic situation, Finance Minister Ibrahim Al-Assaf said the Kingdom's gross domestic product (GDP) in 2009 was expected to decline by 22.3 percent to SR1.38 trillion as a result of a major fall in oil revenues. At the same time, the nonoil public and private sectors were expected to make a growth of 5.5 percent with the public sector growing by 10.2 percent and the private sector by 2.85 percent in current prices.
"All nonoil economic sectors have achieved positive growth during the year," the minister said. He estimated the growth in nonoil downstream industries at 2.2 percent; the transport and telecom sector six percent; the electricity, gas and water sector 3.35 percent; the building and construction sector 3.9 percent; the trade, hotel and restaurant sector 2 percent; and the finance, insurance and real estate sector 1.8 percent.
Al-Assaf said the private sector's contribution to the GDP this year amounted to 47.8 percent of total in fixed prices. "This shows the sector's effectiveness, especially those of downstream industries and services." He said the cost of living index rose by 4.4 percent in 2009 compared to the previous year.
Economists and financial analysts said the new budget would boost the Kingdom's economic growth. "For the upcoming year, it is impressive and encouraging to see that the government's expansionary outlook will continue," said Faisal H. Alsayrafi, managing director & CEO of the Jeddah-based Financial Transaction House.
"Almost $70 billion has been allocated for investment projects, focusing on sustainable development and job creation, which we believe will continue to push the Saudi economy into a stronger position in dealing with any side-effects of last year's economic crisis," he said. Alsayrafi added: "Last year's budgeted revenues were around $109 billion while actual revenues came in at over $134 billion � the cause for the deficit has been attributed to an increase in expenditure on various projects. Similarly, we could assume that the 2010 budgeted revenues, which are projected at over $125 billion, could be conservative estimates."
John Sfakianakis, group general manager and Chief Economist at Banque Saudi Fransi, said the budget reflected the government's strong commitment to spending to help create opportunities for the private sector and keep the economy on a sustainable growth pattern. "There is little doubt that the government is firmly committed to its $400 billion program through 2013," he said.
The spending that Saudi Arabia has embarked is being done with no debt created which is almost unique for any other country within the G20. Many G20 countries as trying to support their economies by printing money," Sfakianakis said.
Paul Gamble, head of research at the Riyadh-based Jadwa Investment, called it an aggressive budget, with spending maintained at a very high level. "Government spending played a vital role in supporting the economy during 2009, but weak confidence and tight credit conditions have constrained the private sector response. By maintaining high spending, particularly in the form of investment spending, the government aims to reassure the private sector about its confidence in the economic outlook," he added.
Gamble said the projected deficit would not be a problem as it could be financed through the drawing down of the foreign assets of the Saudi Arabian Monetary Agency, which stood at $389 billion at the end of October.
"Preliminary data were stronger than we had anticipated. Real GDP grew by 0.15 percent despite a large contraction in the oil sector. Nonoil private sector growth was 2.5 percent with all sectors of the nonoil economy growing. Lower oil revenues pulled the current account surplus to an eight-year low of $20 billion."
Gamble expected the budget for 2010 would balance by the end of the year with an increase in oil revenues. "We estimate that oil production of 8.3 million barrels per day at $50 per barrel for Saudi oil ($51 per barrel for WTI) is consistent with the oil revenue projection used in the budget. We believe that this is a conservative assumption and based on our forecast that Saudi oil will average $70 per barrel during 2010 and government spending will be above the budgeted level, we forecast that the budget will be roughly in balance this year."
Said Al-Shaikh, chief economist at National Commercial Bank, said the government was pushing expansionary fiscal policy to stimulate growth of the nonoil sector.
"In the new budget, there is a SR35 billion increase in capital expenditure compared to last year's. So there will be a major expenditure in water, agriculture and infrastructure sectors which signifies there is an appropriation for new projects." The Kingdom has also increased budget for credit institutions. "The budget shows government continues to use specialized credit institutions to ignite economic growth," Al-Shaikh said.
Khaled Al-Bassam, associate professor of economics at King Abdulaziz University in Jeddah, said increased spending targeted by the budget would have great impact on boosting private sector growth. "There is strong relation between private sector growth and government spending," he said.
Ali Hassan Naqour, deputy chairman of the National Transport Committee, said the budget has allocated SR31 billion for roads, airports and railway projects. Yahya Kaushik, expert in water and sewage projects, noted 30 percent increase in budget allocations in the sector.
Businessman Abdullah Ridwan said the budget would boost the Kingdom's construction sector, adding that the sector would make substantial growth during 2010.
Source: Middle East North Africa Financial Times (MENAFN).
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