RIYADH: Saudi Arabia's 2011 budget has been endorsed by the Council of Ministers and indicates the government is committed to continue raising expenditures at a healthy pace while reducing its debt burden. Expenditure allocations were raised almost 8 percent from 2010 levels to SR580 billion, which should be enough to spur solid economic growth and encourage greater private sector participation. The budget emphasizes infrastructure and social spending, with education and training accounting for 26 percent of the total allocation. While the budget demonstrates the state's willingness to continue steering the economic recovery, it also reduces the pace of budget expansion in a bid to tame overspending, which remained high in 2010 at 16 percent. Expenditure allocations for 2011 grew at the slowest pace since 2003. The 2011 budget demonstrates that the Kingdom is dedicated to continuing stimulatory spending to develop the economy and persuade private investors to do the same as they gradually emerge from a phase of deleveraging. A slowdown in the pace of budget growth, however, also signals the state's goal to rein in overspending and employ more prudent and efficient fiscal policies in the coming years. The private sector is showing signs of a healthy comeback, assisted by the government's commitment to invest and a guarded pick up in bank credit growth. The breakeven price for the 2011 budget is estimated at WTI $58 a barrel. The high oil price environment in 2010 enabled Saudi Arabia to post a very strong budget surplus of SR108.5 billion ($28.9 billion) this year, more than double our forecast, according to the preliminary estimates released in the budget report. We think that the surplus is a combination of higher oil revenues as well as possible lower capex from Saudi Aramco during 2010. Public revenues rose 44.2 percent from 2009 to SR735 billion, while expenditures climbed 5 percent to SR626.5 billion. Elevated state spending has played an essential part in maintaining confidence in the economy as the government seeks to re-integrate the private sector into the development process. The government's pivotal role in the economy was evident in government sector GDP growth of 5.9 percent in 2010 up from 4.4 percent in 2009, according to the Ministry of Finance statement, reflecting the fastest pace of growth in more than a decade. Non-oil private sector GDP grew a respectable 3.7 percent in 2010, up from 3.5 percent last year. Real GDP growth of 3.8 percent was in line with our forecasts, as was nominal GDP of SR1.63 trillion ($434.7 billion). Some non-oil sectors posted good growth, including transport and communications, which grew 5.6 percent. The performance of other sectors was not as bright; finance, insurance and real estate expanded by only 1.4 percent at constant prices. A highlight for 2010 was the government's ability to reduce its domestic debt burden by a massive 25.8 percent. Domestic debt stands at SR167 billion, or 10.2 percent of GDP, down from more than 80 percent in 2003. – Writer is chief economist, Banque Saudi Fransi __
