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Saudi Arabia stimulates the economy by spending $154 billion in 2011

The kingdom plans to spend the reserves accumulated during the oil price boom to upgrade infrastructure

Reuters, Monday 20 Dec 2010
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Saudi Arabia is to spend SR 580 billion ($154.7 billion) in 2011 and expects a deficit of 40 billion riyals, the finance ministry said in a statement on Monday.

The largest Arab economy and top Opec exporter said the 2011 budget will again focus on education, health and infrastructure projects.

In 2010, the actual revenues have come to SR735 billion ($196 billion) and actual expenditure reached 626.5 billion riyals ( $167 billion), the ministry said.  It expects 2010 real GDP growth of 3.8 per cent and inflation of 3.7 per cent.

Saudi overspent by SR86.5 billion, mainly for salary increases for soldiers, and for some development and education projects.

The kingdom has accumulated huge reserves during a six-year oil price boom and is planning to spend more than $400 billion over the five years to 2013 to upgrade infrastructure, including airports and roads.

Commenting on the budget, John Sfakianakis, chief economist, Banque Saudi Fransi, said, 'It is within the government's commitment to expand the budget. If the oil prices sustain the levels that they have been sustaining over the past months, then they could very likely end up with a good amount of surplus.'

'Overall I think that the budget is very healthy and very stimulatory,' he added.

Paul Gamble, head of research, Jadwa Investment, described it as another stimulatory budget for the economy. 'Capital spending is down very slightly from the level budgeted for 2010, but the absolute level is very high,' he pointed out.

'The breakdown of spending continues the theme of enhancing physical and social infrastructure and is in line with recent development plan. The size of surplus in 2010 is bigger than we had anticipated, with revenues surprising on the upside,' Gamble added.

Khan Zahid, chief economist at Riyad Capital, said, 'We believe that fiscal policy will be the key driver of growth in Saudi economy in 2011, backed by the biggest budget ever and massive infrastructure spending of the recently announced 9th Development Plan.'

His comments came shortly before the budget was issued.

'As a result of strong government support we expect the Saudi economy to pick up pace in 2010 and 2011,' he added.

Monica Malik, chief economist, EFG-Hermes, Dubai, said, 'The budget was broadly in line with our expectations. It again points to the continuation in the strongly expansionary fiscal stance.'

'We believe that both private consumption and investment will get a strong boost from the budget and we see real non-oil GDP strengthening further in 2011. The budget again seems to underestimate the oil price and we forecast that Saudi Arabia will realize another surplus in 2011,' Malik added.

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