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The Saudi Government has recently unveiled the Kingdom’s largest budget for the 2010 fiscal year. Using conservative demand and pricing estimates for oil, the government projects revenues to value $125.3 billion (SR470 billion), while expenditures will total approximately $144 billion (SR540 billion), resulting in a projected deficit of $18.7 billion (SR 70 billion). The upcoming budget represents an increase of 14 percent from the $126.7 billion (SR475 billion) allocated in public spending in 2009 and is roughly three times the size of the budget from 2005.

The newly-released budget demonstrates the Saudi Government’s ongoing commitment to developing infrastructure and improving social services, while at the same time responding to the requirements of the national economy in light of the global economic circumstances. Despite the substantial spending by the Saudi Government, the country is acquiring no debt, as opposed to most G20 countries.

Significantly, 2010 budget includes an unprecedented $69 billion (SR260 billion) for new and existing infrastructure projects in the areas of power generation, construction, and transportation, marking a 16 percent increase from 2009. The emphasis on development projects is designed to increase job opportunities across all economic sectors, while at the same time continuing major campaigns to overhaul much of the Kingdom’s infrastructure systems. The 2010 budget will mark a $9.3 billion (SR35 billion) increase in projected capital expenditure compared to 2009. The fiscal appropriations promotes, in particular, education, health, security, social and municipal services, water, sanitary drainage, roads, electronic commerce and scientific research support.

According to Banque Saudi Fransi, there is no doubt that the government is firmly committed to its $400 billion (SR1.5 trillion) investment program through 2013. Further, the 2010 budget reflects the government’s unwavering commitment to create opportunities for the private sector through spending to keep the economy on a sustainable growth pattern.

Highlights of the 2010 National Budget

Education, Manpower, and Development

• Total expenditure: $36.5 billion (SR 137billion)

Accounting for more than 25 percent of the total budget, the appropriation for education and manpower development aims to increase both the quality and quantity of the Kingdom’s human resource base among the Saudi Arabia’s population, of which two-thirds are under the age of 30. The budget includes the construction and development of four new universities in Dammam, Alkharj, Majma and Shaqra, along with the completion of surrounding infrastructure around a number of existing universities and the establishment of new polytechnic colleges and vocational institutes. In addition, more than 5,000 Saudi students will receive scholarships to study abroad as part of the King Abdullah Scholarship Program, with a particular emphasis on technical training. New projects for primary education will include the addition of 1,200 new schools to the 3,112 schools currently under construction and the more than 770 schools completed in 2009. Two-thousand existing schools are scheduled for renovation. The government will continue to place a large emphasis on implementing its national plan for science and technology.

Health and Social Affairs

• Total Expenditure: $12.3 billion (SR61 billion)

In an effort to modernize and expand Saudi Arabia’s healthcare system, the government has allocated funds the construction of 92 new hospitals, with a capacity of 17,150 beds, along with a number of primary health care facilities. In addition, the government has budgeted for the establishment of a number of sports clubs and sports cities to promote healthy lifestyles. Social services will include the building of social centers and social welfare and labor offices. In addition, funds will further support poverty reduction programs.

Water, Agriculture, and Infrastructure

• Total Expenditure: $12.27 billion (SR46 billion)

Appropriations for new projects will be dedicated to enhancing water resources, dams and wells, as well as improving water and sewage networks. There are also allocations for new water desalination plants and the upgrading of existing ones. Moreover, these appropriations include new projects, which will be undertaken in the two industrial cities of Jubail and Yanbu to attract domestic and foreign investments. Monetary allocations in the 2010 budget mark a 30 percent increase from the previous year.

Municipal Services

• Total Expenditure: $5.9 billion (SR22 billion)

Funding for municipal services include the construction of inter-city roads, road lights, and intersections and bridges. The budget also includes funds for sanitary and other environment-related projects. The total allocations for municipal services marks a 15 percent increase from allocations made in the 2009 budget.

Transportation and Telecommunication

• Total Expenditure: $6.4 billion (SR24 billion)

The appropriation for transportation and telecommunications will include funding to add roads totaling 3,977 miles (6,400 kilometers) of new roads to the 21,748 miles (35,000 km) of roads currently under construction. In addition, work will continue on major expansion projects among the Kingdom’s ports, airports, and railroads. Further, the government will focus on the development of new postal services. The 2010 budget marks a 24 percent increase over the 2009 budget allocations.

Specialized Credit Development Institutions and Government Financing Programs

The Saudi Government has allocated funds the lending capacity of specialized credit development institutions and banks to provide loans to the industrial and agriculture sectors, which will aid in creating jobs and enhancing growth prospects. The government projects that $12.9 billion (SR48.3 billion) will be disbursed throughout 2010 by credit institutions, such as the Real Estate Development Fund, the Saudi Industrial Development Fund, the Saudi Credit and Saving Bank, the Agriculture Development Fund, the Public Investment Fund, and the Government Lending Program.

Economic Developments in 2009

In addition to announcing the 2010 budget, the Saudi Government announced the projected actual revenue for 2009 to be $134.67 billion (SR550 billion), marking a $25 billion (SR93.8 billion) increase from the projected revenue of the 2009 budget. The difference in actual revenue from spending will result in an estimated real deficit of $12 billion (SR45 billion).

The Central Department of Statistics and Information estimates the nominal GDP for 2009 to be $369.2 billion (SR1.38 trillion) in current prices, reflecting a contraction of approximately 22 percent from 2008. Nominal non-oil GDP is estimated to have grown by 5.5 percent, which is mainly attributed to the government stimulus program. The private sector is estimated to have increased by 2.9 percent in current prices in 2009.

Real GDP is estimated to have advanced by 0.15 percent, while the non-oil real GDP is projected to grow by 3 percent, with the government sector increasing by 4 percent and the private sector expanding by 2.54 percent in 2009. All components of the GDP recorded positive growth in 2009, except the oil sector. The industrial sector is estimated to have increased by 2.2 percent, while the construction sector is projected to have grown by 3.9 percent and the electricity, gas, and water sector by 3.35 percent. The transport and communication sector should show an increase of 6 percent, while the wholesale, retail, restaurants, and hotels are projected to increase by 2 percent. Finally, the finance, insurance, and real estate sector are estimated to show an increase of 1.8 percent in constant prices, and the private sector contribution to GDP is projected to be 47.8 percent in constant prices.

A major component to the growth of GDP, the Saudi Arabian Monetary Agency (SAMA) estimates the total value of exports of goods and services to be $184.4 billion (SR691.6 billion) in 2009, representing a contraction of about 41 percent in comparison to 2008. Nonoil exports of goods are estimated to be $27.1 billion (SR 101.8 billion) for 2009, marking a jump of 16.4 percent, and accounting for 15 percent of total goods exported. Total imports of goods are estimated at $80.4 billion (SR301.3 billion), marking a 21 percent decline from 2008. According to preliminary data from SAMA, the trade balance will record an estimated surplus of $104.1 billion (SR390.3 billion). This marks a 50.9 percent decline from 2008, which is mainly a result from the drop in oil prices and oil demand. The Kingdom’s current account is estimated to record a surplus of $20.5 billion (SR76.7 billion) in 2009, compared to $132.3 billion (SR496.2 billion) in 2008, marking a decline of 84.5 percent.

Financial funding for the expansion of businesses and major projects marked a growth in the first 10 months of 2009, with the broad money supply of money and banking increasing by 8 percent. Bank deposits recorded a growth rate of 8.2 percent during the same period of time, while total banks claims on public and private sectors declined by 5.7 percent. Banks’ capital and reserves increased by 24.1 percent reaching $43.63 billion (SR163.6 billion).

The Capital Market Authority (CMA) continued its efforts to develop the bonds market and improve the transparency and fairness, as well as investors’ protection. CMA has approved 10 initial public offerings totaling about $7.1 billion (SR26.6 billion). In addition, CMA licensed 24 mutual funds and 14 new brokerage and portfolio management firms, increasing the number of licensed firms to 124.

In other business or economic related highlights in 2009, the Kingdom was ranked the 13th most business-friendly country in the world, according to the World Bank’s Doing Business 2010, and Standard and Poor’s sovereign rating of Saudi Arabia at (AA-). Significant initiatives also included new fiscal, institutional, and structural reforms that affected the Agriculture Development Fund and resulted in the creation of the National Committee for Clean Energy Development, the National Plan for Nuclear and Radiation Emergency, Tax Incentives for Investment in specific geographical areas, By-Laws for nonprofit Technical and Vocational Training, and rules for dealing with national employees in sectors slated for privatization. (via us-sabc.org)