Economists say high oil prices fuelled massive Saudi expenditure bill in 2008 surplus budget. RIYADH - Cash-rich Saudi Arabia plans to continue its spending spree for a fourth year running after unveiling a massive expenditure bill in its 2008 surplus budget, spurred by soaring oil revenues, economists said on Tuesday.
The world's top oil exporter and producer on Monday projected spending in 2008 at 109.3 billion dollars, the second highest in the kingdom's history.
Economists expect that actual spending in 2008 will turn out to be higher than projected, as has been the case in some previous years. In 2007, actual spending exceeded budget projections by about 17 billion dollars.
The ministry of finance also said spending this year would reach a record 118.1 billion dollars, while it was 105 billion dollars in 2006.
The sharp rise in year-on-year spending comes on the back of high oil revenues that have resulted in a huge surplus amounting to 220 billion dollars between 2003 and 2007.
The most important feature in the country's rising spending is that capital expenditure, which focuses on development projects, has risen quickly, leading Saudi economist Ehsan Bu-Hulaiga said.
"The pace of investment spending has been rising rapidly. The trend began in 2005 and is continuing. In 2008, 40 percent of total spending is allocated to mega-projects and infrastructure," Bu-Hulaiga said.
"This is certainly very high. Huge funds have been allocated for education and health projects, besides other (long-term) productive projects," he said.
The 2008 budget earmarked 28 billion dollars for education and about 12 billion dollars for health. In all, 44 billion dollars will be spent on new projects.
Saudi Arabia's finance ministry on Monday projected revenues for 2008 at 120 billion dollars and spending at 109.3 billion dollars, leaving a surplus of 10.7 billion dollars.
The actual surplus is expected to be much higher, though, as the government normally uses conservative oil price forecasts for its projected budgets.
The kingdom, which about a quarter of global oil reserves, pumps nine million barrels per day. Its population of around 24 million includes six million foreigners.
Saudi economist Abdulwahab Abu-Dahesh said that the kingdom's fiscal expansion policy could backfire, especially because of inflation which has increased sharply this year to more than four percent.
"I think that spending has been higher than required especially with high inflation and slow-paced implementation of projects signed last year and in 2007," Abu-Dahesh said.
The government has also been using part of the budget surplus to repay its huge public debt which topped 170 billion dollars at the start of the decade.
The finance ministry said that some of this year's surplus will be used to reduce the public debt to 73.6 billion dollars from 97.6 billion dollars at the end of 2006. It will be 19 percent of Gross Domestic Product.
Most of the debt is domestic and owed to local banks and two state-run funds.
However the government still uses a large part of public expenditure for current spending, mostly to pay the wages of more than one million civil servants, in addition to administrative costs.
"It's very difficult to reduce current spending because it pays for mostly Saudi employees," Bu-Hulaiga said.
The 2007 budget surplus of 47.6 billion dollars is lower than in the previous two fiscal years because of a drop in revenues and a rise in spending, Abu-Dahesh said.
Meanwhile Saudi Arabia continues to enjoy its best ever economic indicators. GDP is estimated to reach a record 377 billion dollars by the end of this year, recording an annual nominal growth rate of 7.1 percent and 3.1 percent in real terms.
Trade surplus is expected to reach 148.2 billion dollars, while the balance of payments will record a surplus of 89 billion dollars this year, down from 98.9 billion dollars in 2006.
Comment: This explains some of our policy toward the Arab states. It is our hard earned dollars at work! They need not have a large military, we will protect the oil fields. They need not offer any steps toward freedom as they control everyone's pocketbook and thus control behavior. Until the West diminishes its need for oil, nothing will change. I suggest that we should we even threaten to develop a 10-year freedom from oil dependency plan, the price of oil would come down-the Saudis know that we are so dependent upon their one resource they can dictate all terms. Take this away or suggest we shall take this away (non-military actions) you would see a different set of behaviors. The question that begs to be asked: why does the West, especially the USA not dothis?
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