RIYADH: Saudi Arabia will overspend its budget by up to 15 percent this year due to spending on construction and job-creation measures, its finance minister said Tuesday.
Worried by unrest sweeping the Arab world, the world’s top oil exporter has pledged to spend an estimated $130 billion, or around 30 percent of its annual economic output, on new houses, creating jobs, unemployment benefits and other measures.
The OPEC member, which relies on hydrocarbons for over 80 percent of budget revenue, has not said how the expenditure will be spread.
“Because of decrees issued by the custodian of two holy mosques, it [spending] will be over [plan],” Finance Minister Ibrahim Alassaf told reporters at a financial conference, referring to King Abdullah’s more formal title in the country that is home to Islam’s two holiest sites.
“We will overspend. I cannot project by how much exactly, but I think it will be 10-15 percent,” Alassaf said.
He reiterated an earlier forecast that Saudi economic growth this year would exceed 4 percent, up from 3.8 percent growth last year.
The biggest Arab economy, which tends to heavily overspend its conservative budget when oil prices are higher, had originally planned to spend 580 billion riyals ($155 billion) in 2011 in its third consecutive record budget.
Robust oil prices – near $98 per barrel on Tuesday – should enable Saudi Arabia to cover the additional spending without having to tap into its record high net foreign asset reserves of $461 billion and could even generate a budget surplus in 2011.
“We might not need to [use foreign reserves],” Alassaf said, adding it was premature to assess the need as it was still early into the year. “We are confident that the current resources will be enough to meet needs [for project financing] due to high oil prices, which is the base of the budget.”
Alassaf did not say what the assumed oil price in the Saudi budget was. When asked, he said: “The suitable price is the price that is good for the market stability.”
Analysts say the oil price Saudi Arabia needs to balance its budget has risen substantially to at least $80 per barrel due to recent social measures. Saudi officials have said that they were comfortable with crude around $70-80.
“I would be concerned about potential uncertainty whether the realized oil price is enough for budgetary purposes,” Blythe Masters, head of global commodities at JPMorgan Chase, told the same event, when asked what oil price she would be looking for.
A Reuters poll in March forecast the Saudi budget surplus would reach 7.0 percent of GDP this year, up from an estimated 6.7 percent in 2010.
Alassaf also said he hoped new housing, at 250 billion riyals a major part of the additional government spending, could be built within five years.
“We need more supply of housing, but I hope it will be spent over five years rather than 10 years. It might have a short-term impact on inflation but it will have a positive impact on inflation in the long term,” he said.
Saudi annual inflation, mainly driven by housing and food costs, inched up to 4.8 percent in April.
Central Bank Governor Mohammad al-Jasser told the same event that Saudi banks were in a good position to extend loans to the private sector without burdening their balance sheets.
“The trend toward relying on government cash to push forward crucial infrastructure projects has to some extent stifled the rebound in bank credit and restrained private sector investment,” John Sfakianakis, chief economist at Banque Saudi Fransi, said in a note.