Saudi Arabia slows planned spending growth in record 2014 budget

Targeted spending will increase 4.3 per cent to 855 billion riyals (Dh837bn) next year, compared with a rise of almost 20 per cent in the 2013 budget, the finance ministry said in a statement on its website.

The kingdom posted revenue of 1.13 trillion riyals this year as the price of Brent crude held above $100 a barrel for a third year. Expenditure came in at 925bn riyals, exceeding the 820bn-riyal budget target announced a year ago, ministry data show.

King Abdullah has allocated a record amount of money to build roads, industrial centers and airports as he seeks to reduce the country’s oil dependency and to fight joblessness of 12 per cent. He has used oil money for social welfare, including on education and housing, to ward off the kind of political unrest that swept through other Arab countries in the past three years.

“Budget appropriations will continue to focus on investment programmes that enhance long-term strong and sustainable economic development and employment opportunities for Saudi nationals,” the finance ministry said.

The nation’s US$745bn economy grew 3.8 per cent this year, including expansion of 4.7 per cent for non-oil industries, the finance ministry said, citing estimates. That missed the 4 per cent forecast of 19 analysts compiled by Bloomberg. The oil sector declined by 0.6 per cent, it said.

“We expected to see Saudi Arabia release another expansionary budget for 2014, although the pace of planned spending growth was slower than the robust 18 per cent for 2013,” Monica Malik, the Dubai-based chief economist of EFG-Hermes, said in response to emailed questions.

“The focus of the spending was dominated by social areas, such as education and health, including infrastructure in these areas.”

Saudi Arabia has introduced almost $800 billion in stimulus measures since 2008. The winding down of that assistance and restrictions on foreign workers imposed this year have trimmed economic growth. Third-quarter growth slowed to 3.1 per cent from 5.7 per cent in the same quarter last year, according to data from the the Central Department of Statistics in Riyadh.

The Arab world’s biggest economy in April started deporting and arresting undocumented workers as part of a push to create more jobs for its citizens. After two amnesties, which allowed migrants to change their status to work in the kingdom or leave, the measures resumed on November 4.

“The big question is for how long will the expansionary fiscal picture continue and how will this be reflected on non- oil private sector growth,” John Sfakianakis, chief investment strategist at MASIC in Saudi Arabia, said in response to e- mailed questions.

The Al Saud ruling family unveiled plans to create jobs and build roads, ports and industrial cities to ward off the global financial crisis from 2008, and then three years later announced extra spending to spur employment and salaries. Private sector growth expanded by 5.5 per cent in 2013, the ministry said.

Growth in the non-oil sector “appears to have weakened in the past couple of months,” Jason Tuvey, an economist at London-based Capital Economics, wrote in a December 17 report. “This partly reflects the weakness of non-oil imports, which adds to signs that consumer spending may be struggling.”

Non-oil imports have slowed the last six months, according to the Central Department of Statistics in Riyadh. Imports rose 6.2 per cent in October, compared with 9.6 per cent for the same month last year, according to the data.

Next year’s budget includes 248bn riyals of capital expenditures on investment projects, a 13 per cent decline from this year, finance ministry data shows. The biggest proportion of spending will go toward education, with the allocation gaining 3 per cent to 210bn riyals.

“The continued very high level of government spending will be supportive to the economy,” Paul Gamble, a London-based analyst at Fitch Ratings, said by email.

Saudi Arabia derives about 90 per cent of revenue from oil sale. This helped the nation’s central bank boost its net foreign assets to a record 2.7 trillion riyals in October, according to central bank data.

The government uses conservative crude price estimates when planning its budget. This year it needed oil in the late $70s per barrel, Mr Sfakianakis said. The break-even price should be about $85 per barrel next year, given actual spending for 2013 and announced outlays for 2014, he said.