From Arab media source:
RIYADH, 11 December 2007 — Robust oil prices gave a record boost in oil revenues for Saudi Arabia in 2007. Oil revenues stood at a historical high of SR754.4 billion ($201.1 billion). In regional terms the size of the Kingdom’s oil revenues are staggering. The Kingdom’s oil revenues for 2007 were more than 118 percent of the UAE’s GDP in 2006 and four times bigger than the size of Qatar’s GDP. However, nonoil exports rose close to 25 percent, which is a positive step and indicative of the efforts to diversify away from simply producing oil.
In fact, nonoil exports in 2007 represented a 12.4 percent out of total exports whereas in 2006 in was a bit more than 10 percent. This is a slow but important advancement.
Although the budget surplus fell by 62.8 percent over 2006 it is still at a comfortable rate. Simply, the surplus fell because spending increased, in line with our expectations. Spending in 2006 increased above the projected level by 16.5 percent, which was above 13 percent increase in spending in 2006.
The state is spending more money in the various projects in the holy places, subsidies, higher university admissions and scholarship and these account for more budgetary spending. We estimate that the recently announced rice subsidy is estimated to cost around SR1.2 billion and the milk powder is another SR1.3 billion.
The 2008 budget is based on a price of $45 per barrel at an average 2008 production of 9.5 million barrels per day.
Projected expenditure is certain to be surpassed. In 2007, expenditure was projected at SR380 billion and actual spending reached SR443 billion. Revenues are also based on a conservative estimate. Projected revenues for 2007 were SR400 billion and actual revenues reached SR621.5 billion. Such conservative estimates are not bad and they are common in all of the GCC states as well as oil-based economies.
A case in point is the high volatility of oil prices this year. Indeed price for WTI crude oil surpassed $99.00 per barrel but in January they hovered around $50 per barrel. Hence, the logic is correct and prudent. Also, oil-based economies, including Saudi Arabia, for about two decades went through difficult period as a result of subdued oil revenues. This lesson Saudi Arabia has learned well. Saving and not spending is a prudent way toward sustainable growth. Not long ago (2001 and 2002), Saudi Arabia witnessed a budget deficit.
Paying off public is another important step for the Kingdom’s fiscal position. Paying off government debt reduces the government’s financing costs and increases the pool of finance available to banks that can be deployed to support needed projects. The government set aside SR53.5 billion to pay off government debt. Although some SR108 billion in government debt was paid off in 2006 the government in 2007 was more careful.
At a time of mounting inflationary pressure in the economy the government had to make sure that it pays down some government debt without injecting more money supply into an over money supplied system. Government debt declined from 28 percent of GDP in 2006 to 19 percent in 2007. The decline of government debt to GDP is notable but it is also related due to rise of GDP. As the size of the economy grew, government debt in relation to GDP fell.
Although part of the surplus money went to pay off government and another SR100 billion went toward foreign asset accumulation another SR25 billion was allocated to the Real Estate Fund over a five-year period. Certainly, this a step in the right direction, as the housing needs of the country are rising steeply.
At the center of the Kingdom’s modernization program is education and training. An important highlight of the budget is the continuous spending in education, manpower training. Total expenditure amounts to SR105 billion in 2007 from SR96.7 billion in 2006. Technical and vocational training continues to receive needed budgetary support and seven new technical institutes for girls and sixteen vocational training centers form part of the 2008 budget. Again, health care is an important component of the budget as population growth places demands on adequate public health care. Health care and social affairs has received once again the largest year-on-year in expenditure. Health care expenditure increased by 11.3 percent whereas education and manpower increased by 8.6 percent. The budget has allocated SR44 billion to see through the building of 8 new hospitals in addition to 250 primary care centers. Meanwhile, there are 79 hospitals under construction, which will add 9,850 beds. The rest of budget allocates nearly SR62 billion: for municipal services (SR17 billion), transportation and telecommunications (SR16.4 billion), water, agriculture and infrastructure sector (SR28.5 billion).
Finally, real GDP growth slowed to 3.5 percent in 2007, from 4.3 percent in 2006. We expect real GDP to rise above 5 percent in 2008. We expect oil production cuts are the main reason for the slowdown this year and real GDP would have more subdued has it not been for an increase in Saudi Arabia’s oil production from 8.5 million barrels per day during this summer to 9 million barrels per day since that time. Nominal GDP grew by 7.1 percent in line with the rise in oil prices. Real nonoil private sector growth reached 5.9 percent below the 6.4 percent in 2006. Inflation increased to 3.1 percent despite the moderate increase in capital spending in 2007. Capital spending for 2008 is estimated to reach around 14 percent, which would help keep inflationary pressures more containable.
— Dr. John Sfakianakis is chief economist at SABB.
Comment: What country purchased the bulk of this oil? Yes, the USA-follow the money in order to understand who is really in control.
No comments:
Post a Comment