SAUDI ARABIA'S 2009 BUDGET PERFORMANCE AND 2010 FORECAST

UNCLAS RIYADH 000076

SIPDIS

DEPT FOR NEA/ARP, EEB

E.O. 12958: N/A
TAGS: ECON EFIN PGOV SA
SUBJECT: SAUDI ARABIA'S 2009 BUDGET PERFORMANCE AND 2010 FORECAST


1. (U) Summary: The SAG announced its largest budget ever on
December 21. It projects spending for 2010 will be $144 billion, up
14 percent from 2009; and estimates revenues will be $125.3 billion
compared to 2009's actual revenues of $135 billion, projecting a
deficit of $18.6 billion. As with the 2009 budget, capital
expenditure is a key component of the SAG's 2010 budget. Education
and manpower development allocations account for 25.5 percent of the
budget; health and social affairs for 11 percent; and water,
agriculture, and infrastructure for 8.5 percent. Saudi Arabia's
2009 budget recorded a deficit of $12 billion, approximately 3.3
percent of GDP, as a result of lower oil revenues and higher than
budgeted expenditures. Actual expenditures exceeded the budget by
15.7 percent, but revenue was 23 percent greater than anticipated,
resulting in a smaller deficit than had been forecast at the
beginning of the year. End summary.

--------------
2009 Budget Performance
--------------


2. (U) On December 21, the Saudi Council of Ministers announced the
government's 2009 financial results and endorsed the SAG's 2010
budget. The SAG ended 2009 $12 billion in the red, roughly $5
billion better than anticipated. The better-than-expected result
was almost exclusively a result of higher than forecast oil prices
during the second half of 2009. It was also in spite of actual
spending exceeding the budgeted $127 billion by $20 billion.
Revenues for 2009 were $135 billion, up 23 percent from an expected
$109.3 billion. Oil revenue accounted for 86 percent of this total.
According to media reports, the additional $20 billion in spending
went to the development of mosques and religious sites, military and
security projects, wage increases for government employees and
teachers, scholarships, social security, and subsidies for essential
commodities such as barley, rice, cattle feed, formula milk, and
rice.


3. (U) The SAG's budget deficit was the first since 2003. It funded
the deficit by selling international assets rather than issuing new
debt. SAG debt remains at just over 13 percent of GDP and is all
held domestically. Relative to 2008, actual government revenues
fell by more than 50 percent due to the sharp correction in oil
prices and OPEC-mandated oil production cuts.


4. (U) The Saudi current account surplus fell to $20.5 billion, 5.5
percent of GDP, compared to $134 billion last year. Economists
attribute this decline to lower oil export revenues. The total cost
of imports fell by 21 percent as a result of lower global commodity
prices.

--------------
2010 Budget Forecast
--------------


5. (U) The SAG projects spending $144 billion in fiscal year 2010,
up 14 percent from 2009; and estimates revenue will be $125.3
billion compared to 2009's $135 billion. Local economists believe
these projections for both revenue and expenditures to be
conservative as with oil prices hovering near $80 / barrel it is
unlikely revenue will be less than in 2009. The SAG also typically
has cost overruns of 15 to 20 percent. Although the budget does not
explicitly state what oil price it's based on, economists estimate
the SAG used an average price of $43 - $45 / barrel and an average
production level of 8.3 million barrels per day. These same
economists actually expect oil to trade between $65 - 75 as optimism
regarding the pace of the global recovery rises.


6. (U) The following is a breakdown of the budget's allocations:

-- Education and manpower development is projected to rise to $36.6
billion (25.5 percent of the total budget),up $4.2 billion from the
amount budgeted in 2009. New projects include 1,200 schools and the
construction of four new campuses for newly-established
universities. Renovations to 2,000 schools and continued
construction of 3,112 schools currently underway. A renewed
commitment to the SAG's overseas scholarship program, with a new
focus on technical training;

-- Health and social affairs expenditures are projected to be $16.3
billion (11 percent of the total budget),up $2.4 billion compared
to the 2009 allocation. New projects include primary healthcare
centers, 92 new hospitals, social welfare offices and poverty
reduction programs;

-- Water, agriculture, and infrastructure expenditures have been
allocated $12.2 billion, (8.5 percent of the total budget),up $2.8
billion from 2009. New projects include water desalination plants
and developments in the industrial cities of Jubail and Yanbu.
There are appropriations to enhance water resources, build dams, dig
wells, and improve water and sewage networks;

-- Transportation and telecommunications expenditures are projected
to be $6.3 billion (4.4 percent of the total budget),up $1.25
billion from 2009's allocation. Projects include 6,400 km of road
to be added to the 35,000 km of roads currently under construction,
as well as ports, airports, railroad developments, and new postal
service;

-- Municipal services are projected to be $5.7 billion, (4 percent
of the total budget),up $500 million from 2009's allocation.
Projects include city roads, traffic lights, bridges, as well as
sanitary and environment-related projects.

--------------
An Expansionary Budget
--------------


7. (U) The SAG's 2010 expansionary budget is the largest in Saudi
Arabia's history and represents an increase of 14 percent over
2009's budget. Saudi Finance Minister Dr. Ibrahim Al-Assaf told
press that in spite of the current uncertainty in global markets,
the King's government has opted to increase allocations for various
projects to maintain the momentum of long-term economic development
and mitigate the impact of the global financial crisis on the Saudi
economy. Local economists are confident that the projected deficit
will not have an adverse effect on the investment climate as Saudi
Arabia has more than sufficient reserves from previous surpluses to
make up for this deficit.

SMITH