18/05/2011
Al-Assaf:Kingdom to overspend budget by up to 15% this year
Economic growth to top 4%
At theinauguration of the Euromoney Saudi Arabia Conference in Riyadh
Finance Minister Ibrahim Al-Assaf delivers the keynote address at the Euromoney Saudi Arabia Conference in Riyadh on Tuesday
Finance Minister Ibrahim Al-Assaf said on Tuesday that Saudi Arabia will overspend its budget by up to 15 percent this year due to supplementary spending on construction and job-creation measures.
“Because of decrees issued by (Custodian of the Two Holy Mosques) King Abdullah, there will be additional spending,” Reuters quoted Al-Assaf as telling reporters following the inauguration of the Euromoney Saudi Arabia Conference in Riyadh.
He predicted overspending would be between 10 and 15 percent and stressed an earlier forecast that Saudi economic growth this year would exceed 4 percent, up from 3.8 percent growth last year.
Al-Assaf disclosed that the Kingdom has been continuing its huge investment programs, including investment expenditures in the budget of this fiscal year that amounts to SR265 billion.
Commenting of Al-Assaf’s comments, John Sfakianakis, chief economist at Banque Saudi Fransi, said: “There is no doubt that Saudi Arabia will overspend above what it usually announces in its annual budget (December) statement, and on top of this it will overspend another 10 to 15 percent if not more given the measures announced by the king in February and March. So actual spending could reach above 35 percent.”
Jarmo T. Kotilaine, chief economist at the National Commercial Bank, however, said the finance minister’s comments appear somewhat more cautious than the exuberant interpretations put by most analysts on the recent announcements about additional spending.
Admittedly, what is still unclear is to what extent the spending commitments included in the recent royal decrees will be channeled through the government budget. Nor do we know the exact distribution over time of the planned spending, although it will clearly be spread over a number of years.
In any event, even direct budgetary spending will almost certainly significantly exceed the original targets. Fifteen percent would be in line with past trends, but the overall increment to aggregate public sector spending will almost certainly be larger than this. After all the new spending commitments announced in recent months almost equal the government budget in size.
In his keynote address at the conference, Al-Assaf said the Kingdom’s economy remains stable and vibrant despite the recent political developments in the region.
“We have not noticed any abnormal financial movements despite the unprecedented events in the region,” he said.
Over the past decade actual spending averaged 22 percent higher than the budgeted amount. In addition, there will be significant supplementary spending resulting from the recent package of royal decrees, said Paul Gamble, head of research at Jadwa Investment.
“We think that around one-third of the SR500 billion spending contained in the decrees will take place this year. Nonetheless, with oil prices and production likely to be much higher than the level the budget was based on, the overspending will not lead to a budget deficit. We forecast a budget surplus of SR95 billion this year. With little debt and very high net foreign assets, the Kingdom’s budgetary position remains healthy,” Gamble added.
More than 1,000 delegates from 40 countries attended the conference.
The other keynote speakers at the inaugural ceremony included Economy and Planning Minister Khalid Al-Gosaibi, and Saudi Arabian Monetary Agency (SAMA) Gov. Muhammad Al-Jasser.
Al-Gosaibi said: “Significant resources are being committed to achieve the various economic targets envisaged by the plans. The Ninth Development Plan allocated over SR1.4 trillion, a 68.2 percent increase over the funds allocated to the Eighth Development Plan. Human Resources Development, which includes general education, higher education, technical and vocational training and science and technology and innovation, will receive about one half of total allocations, reflecting the significant priority placed on this sector.”
The governor indicated that the first source of financing in the Kingdom has been provided locally due to the strength of the local economy, noting that government funds have provided hundreds of billions of riyals to finance industrial projects through long-term loans.
Kotilaine said it is to be hoped that the recent uptick in bank lending will accelerate in an environment of greater optimism, thereby taking us closer to the eagerly awaited private sector recovery.
But it is equally clear that more broad-based economic recovery would also need positive progress in the equity and bond/sukuk markets. Especially the need for long-term financial solutions is acute in the face of massive infrastructure plans.
Saudi banks are well positioned to increase loans, and recent data shows that lending growth has already become more robust, Gamble said.
Total credit to the private sector rose by 2.3 percent in the first quarter of this year. This was the fastest growth rate since the third quarter of 2008 when the global financial crisis struck. As bank deposits have risen faster than lending, particularly in recent months when they were boosted by the bonus for public sector workers, the loan-to-deposit ratio was at a six-year low of 76.5 at the end of March.
Ali Al-Barrak, president and chief executive officer of Saudi Electricity Company (SEC), said in his address his company’s next target is to access the international capital markets which has the biggest pool of liquidity available to utilities.
The event was the 6th Conference of Euromoney Institutional Investor PLC held in cooperation with the Ministry of Finance themed at “Diversification of Financial Resources.”
