RIYADH, (AFP) — Higher salaries and huge infrastructure projects sent Saudi spending soaring in 2010 but high crude prices ensured a solid 17-percent surplus for the oil giant, the finance ministry said Monday.
The government scored a 108.5 billion riyal (28.9 billion dollar) surplus in 2010 despite much higher expenditures than planned and an anticipated shortfall, the ministry said.
It also said economic growth in 2010 was projected to hit 3.8 percent, driven by a 5.9 percent expansion in the government sector which one economist called “astonishing.”
Annual revenue for the world’s largest supplier of oil was projected to hit 735 billion riyals (196 billion dollars) by December 31, compared to expenditures of 626.5 billion riyals.
The government originally budgeted spending of 540 billion riyals, with an anticipated shortfall of 70 billion riyals.
But with oil prices above 70 dollars a barrel for most of 2009 against the budget’s conservative projection of about 50 dollars, Riyadh has a huge cushion to keep pushing its 2009-2014 development programme worth more than 700 billion dollars.
The ministry said the spending surge reflected increased salaries and bonuses for civil servants, university staff and the military, and greater spending on developing Mecca, Medina and other Islamic holy sites.
But it also came from massive expansions of rail and air infrastructure, universities, health care facilities and other public service sectors.
“The government expanded by an astonishing 5.9 percent,” said John Sfakianakis, economist at Banque Saudi Fransi, an affiliate of the Credit Agricole Group.
“Nobody forecast it. My forecast was 4.6,” he said.
He called private sector GDP growth at 3.7 percent “healthy,” pointing out that many companies are still restocking capital after the 2008-2009 global financial crunch.
Nevertheless, with government spending accounting for more than half of the economy, the country remains challenged in its drive to expand and diversify the private side of the economy.
For 2011, the government has budgeted a 7.4-percent shortfall, with planned expenditures of 580 billion riyals against receipts of 540 billion.
While that plan appears contractionary after 2010’s spending, economists note that the government habitually spends far more than it budgets on paper.
“This is part of their fiscal prudence,” said Sfakianakis. “Traditionally Saudi Arabia overspends on the announced amount.”
Riyadh first keeps its eye on where the price of oil is going before making a fuller spending commitment for the coming year.
Sfakianakis said the assumption for the original 2010 budget was 48 dollars a barrel, and that by the time all spending was factored in, the break-even point was 70 dollars – roughly the low end of oil prices for the year.
The on-paper spending plan for 2011 assumes a price of 58 dollars, but Sfakianakis projects actual expenditures to near 700 billion riyals. At that level, “the actual break-even oil price is closer to 73 dollars,” he said.
On Monday, frigid weather in Europe drove the price of Brent North Sea crude to 91.87 dollars a barrel in London trade.