Saudi Arabia needs to slow down its mounting public spending to offset any sudden fall in oil prices because of global economic uncertainties, the National Commercial Bank said in a new study. "In practice, however, the Saudi government has historically significantly overspent its budget, often by 15 percent or more … the need for fiscal discretion is considerable this year as well in the face of the uncertain global economic environment," the study said. "Nonetheless, the continued resilience of oil prices, at least barring a major economic shock in Europe or elsewhere, should once again translate into a far more substantial surplus of more some 7.1 percent of GDP." NCB said a surge in crude prices above the Kingdom's projected $54 oil price level allowed it to turn a budgeted SR40 billion deficit into a massive surplus of nearly SR306 billion in 2011. Oil prices rose Thursday, rebounding from a two-day sell-off fueled by a jump in US crude supplies. Benchmark oil for May delivery was up $1.48 to $102.95 a barrel in afternoon trading on the New York Mercantile Exchange. The contract fell $2.54 to settle at $101.47 per barrel Wednesday. In London, Brent crude for May delivery increased 44 cents to $122.78 per barrel on the ICE Futures exchange. The surplus was achieved after actual revenue shot up to SR1.11 trillion compared with budgeted earnings of SR540 billion. But expenditures also rocketed to nearly SR804 billion compared to budgeted SR580 billion. "Fiscal policy in 2012 is marked by considerable continuity even though it also reflects the exceptional strength the Kingdom's fiscal position," it said. It cited government budget figures showing revenues are projected to be SR702 billion this year, an impressive 30 percent above the 2011 budget plan, albeit clearly behind the actual estimated revenues for the year. It said this reflects a "continued commitment to cautious planning" with an oil price estimate still broadly comparable to last year's $54 a barrel. Expenditures are projected to reach SR690 billion a 19.0 percent increase on the 2011 budget, which in turn translated into a small surplus of SR12 billion. NCB said the surge in spending illustrated what it described as the fiscal resilience of the Kingdom but also the numerous new near- to medium-term spending commitments of some SR500 billion that were unveiled last year. The Kingdom also invested heavily into future development, among other things through 2,600 projects, worth a combined SR148.3 billion, signed with the private sector. "Overall, the Kingdom's fiscal position is exceptional by global standards. The 2011 surplus is equal to some 10.4 per cent of GDP. But due to the increased fiscal largesse, public sector expenditure reached an almost European-style 37.2 percent of GDP," the study said. "Nonetheless, the strong fiscal performance has brought public indebtedness down to historically and internationally modest levels." Its figures showed government debt is estimated to have decreased from around SR167 billion at the end of 2010 to SR135.5 billion - or only about 6.3 percent of GDP - this year, far less than the 2011 surplus. The study noted "considerable expectations" that this state of affairs will trigger government-backed sukuk (Islamic bonds) financing on the grounds that public debt of 10 percent of GDP had been previously indicated as a threshold for renewed government issuance.
