Arab News Editorial: Historic budget

Editorial: Historic budget Arab News

Elsewhere in the world the argument rages whether the recession is over or not. In Saudi Arabia, that is not the issue even though the recession has had significant effect on the economy. It has brought down the price of oil with obvious consequences for government income while Saudi investments abroad, both private and public, have tumbled in value. The effect there has been a sharp intake of breath by investors, creating a distinct lack of local market confidence. That has been noticeable during the past year in a slowdown in private sector projects. It is a very different case with the government. It certainly has confidence. That is seen in the 2010 budget, just announced. It is a bullish budget, a high-spending budget — the largest in Saudi history, with spending at SR540 billion, up 14 percent on the 2009 figure. It is not simply a budget to stimulate the economy, as some observers have suggested. It has to be seen in far bolder, more aggressive terms. It virtually ignores the recession and pushes on with the aim of growth, regardless of what is happening elsewhere. As an indicator of the government's continued determination to turn the country into a high-skilled economy, spending on education (the second largest sector after defense) continues to account for a quarter of all state spending and is up 13 percent on last year's figures (in line with the general rise in spending) and now stands at a staggering SR138 billion. The fact that, for the second year in a row, a budget deficit is projected merely underlines the government's determination not to allow itself to be diverted from its goal of growth. In any event, the projected budget deficit of SR70 billion can be dismissed as irrelevant. At the very worst, the government can draw down on foreign assets of over a trillion riyals — which in fact the Saudi Arabian Monetary Agency was doing for part of the year. It certainly does not have to borrow money. However, there are more pragmatic reasons for comfort. This year's deficit is less than expected — SR45 billion compared to the SR75 billion projected a year ago (and that, despite a government overspend of SR75 billion). There is every reason to believe that 2010 will see a similar drop in the deficit at year-end. The reason is the difference between the notional oil price on which the government planners based their figures and the real one. In 2009, government revenues were based on oil at around $37 a barrel. Although it dropped below that early in the year, the annual average was SR62 a barrel. In 2010, there is no reason to believe that the price will average less than $70 a barrel — and government revenue projection is based on a very conservative $44 a barrel. That means that revenues will be higher than the projected SR470 billion — probably considerably higher. So will spending. It always is higher. The truth about the budget is that it is merely a guideline. The economy is strong — very strong. There is going to be a wealth of construction projects going on and a cornucopia of contracts to be signed. Because of it, Saudi Arabia will remain a key destination for the world's businessmen and exporters, desperate to win them.