Econ 220: Saudi Economy – Topic 4

The Saudi Arabian Budgetary System

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 The Reasons for the Focus on the Budget

• It is a forecast of expenditure to be made for the different

sectors for the coming year.
• Signals regarding the intentions of government priorities in
expenditures.
• The composition of current versus capital expenditure,
allowing businessmen to make plans for project bidding.
• An indication of the likely forecasted, budgeted deficits or
surpluses, thus
• suggest whether the government might borrow domestically
or internationally, as well as the likely impact on Saudi
banking liquidity.
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 The Oil role in Saudi Economy
‫دول البترول في االقتصاد السعودي‬
 Saudi economy characterized as “Rentier economy” where the
government seeks to maximize its revenue from a natural resource
“Oil” and distribute the proceeds amongst various sections of the
population (Chaudhry, 1989).
 All of Saudi economy reforming efforts and development plans to date
centralized around the fact that its economy is essentially oil driven “Oil-
based economy” with resultant strengths and weakness (Ramady, 2005).
 Saudi holds more than 20% of the world’s proven petroleum .
Moreover, the petroleum sector accounts for roughly 80% of the budget revenues
and 25% of GDP. Also, 90% of export earnings comes from oil sector.
 The Saudi economy have been influenced by two major factors:
- The level and growth of oil revenues.
- Government budgetary policies.

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 The Oil role in Saudi Economy
 Saudi Arabia can be best described as a “low cost” and “high
needs” oil producer.
 Saudi is still dependent on oil although the oil sector contribution has
decrease from two third to quarter of the total GDP.
 Saudi economic development has been fuelled by a rise in oil revenues.
 Rise in oil revenues was unsustainable due to the inability of the
government to control oil prices.
 An intention to build a true wealth generating base for the economy.
 There are some signals to shift resources to market required resources.

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 Main Items of the State Budget
under 8 Dev.Plan (SR billion)

Average for First

Items 2004 2005 2006 2007 2008 Four Years of
Eighth Plan

Total Revenues = 3 392.3 564.3 673.7 642.8 1101.0 745.5

Oil Revenues + ( N O)
330.0 504.5 604.5 562.2 983.4 663.7
1+2

Total Expenditure = 3 285.2 346.5 393.3 466.2 520.1 431.5

Investment
37.6 62.3 70.9 119.0 131.2 95.9
Expenditure 1+

Current Expenditure
247.6 284.2 322.4 347.2 388.9 335.6
2
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 Government Expenditure under Seventh and Eighth
Development Plans by Development Sector (SR billion)
Appropriations in Seventh Appropriations in Eighth
Development Development Plan Development Plan
Sector
value % value %

Human
276.9 57.1 480.0 55.6
Resources
Social and
Health 92.6 19.1 155.9 18.0
Services
Economic
54.4 11.2 105.8 12.2
Resources

Infrastructure 61.4 12.6 122.2 14.2

Total 485.3 100.0 863.9 100.0

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Appropriations to Development Sectors of
Budget Surplus for 2004-2006

Development Sector SR billion %

Human Resources 26.5 24.5

Social and Health Services 28.5 26.4

Economic Resources 26.0 24.1

Infrastructure 27.0 25.0
Total 108.0 100.0

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 The Budget
• In theory budget must be balanced
“revenues and expenditures must
balance in both sides of the balance
sheet”.
• In reality the budget has rarely balanced
and that because of the unpredictable
nature of the budgeted revenues.

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 The Government Deficits and Debts
• The government has financed its deficits and
debts through internal borrowing, including
from the domestic banks, which can decrease
the private sector investment demand.
• Crowing out means increasing government debt
through the Saudi commercial banks implies a
competition for financing required by the
private sector for business expansion.

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 The Government Deficits and Debts
• The ratio of fiscal policy deficit to real GDP has been
brought down from the peak levels of 25% in 1986 to
under 5%.
• The Saudi government domestic debt as a percentage
of real GDP had reached the peak in 1999 with 120%.
Then started to decrease because of the reforms and
maintained fiscal balance in its borrowing by the
Ministry of Finance and the increase in oil revenues
and it will be less than 4% by the end of 2012.

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 The Government Budget for 1432/1433 (2011)

 The followings are the main highlights of the

1432/1433 (2011) budget:
 Total revenues are projected at SR 540 (US
$144) billions.
 Government expenditures are budgeted at SR
580 (US $154.7) billions.
 Fiscal deficit is projected at SR 40 (US $10.7)
billions.

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 The Government Budget for
1432/1433 (2011)
 The budget puts emphasis on optimizing the
use of available resources and giving priority
to projects that ensure balanced
development as well as more employment
opportunities and job creation, Specifically :
 education, health, social and security
services.
 municipal services, water and sewage
services, and roads and highways
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The Government Budget for 1432/1433 (2011)

 The budget attaches a particular

importance to projects related to
research and development (R&D) as
well as science and technology
projects for the e-government.

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 The Government Budget for 1432/1433 (2011)

Appropriations:‫المخصصات‬
The 1432/1433 (2011) budget includes financing for new and on-
going projects with a total value of SR 256 (US $68. 3) billions:
 Education and Training:
 Total expenditure amounts to SR 150 (US $40) billions, representing 26 percent of
FY 2011 appropriations and an increase of 8 percent over FY 2010 appropriation.
 Continued implementation of King Abdullah Bin Abdul-Aziz Public Education
Development Project (Tatweer) amounting to SR 9 billion through the Education
Development Holding Company owned by the Public Investment Fund (PIF).
 New projects include 610 new schools and rehabilitation of 2000 existing school
buildings.
 For higher education, the new budget includes appropriations for the completion
of construction of campuses for the newly created universities. Furthermore, the
scholarship program will continue this year.

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The Government Budget for 1432/1433 (2011)
 Health and social Affairs:
 Total expenditure amounts to SR 68.7 (US $18.3) billions,
an increase of 12 percent over FY 2010 appropriation.
 Projects include new primary care centers throughout the
Kingdom, 12 new hospitals. At the present, there are
(120) hospitals under construction with a capacity of
( 26700) beds.
 For social services, the new budget includes
appropriation to build sport clubs, social centers, social
welfare and labor offices. In addition, it includes further
support for poverty reduction programs that will shorten
the time frame required to eradicate poverty.
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The Government Budget for 1432/1433 (2011)

 Municipality services:
 Total expenditure amounts to SR 24.5 (US
$6.5) billions, an increase of 13 percent
over FY 2010 appropriation.
 New project include inter-city roads,
bridges, and road lights, which should help
ease traffic bottlenecks. It also includes
other environment-related projects.

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 The Government Budget for 1432/1433 (2011)
 Transportation and telecommunication:
 Total expenditure amounts to SR 25.2 (US $6.7)
billions, an increase of 5 percent over FY 2010
appropriation.
 New projects include roads totaling 6600(km) to be
added to 30200 km of roads currently under
construction. Also, the budget includes appropriations
to build 4 new airports and rebuilding of king Abdul-
Aziz International Airport. In addition, the budget
includes projects to build additional berths and
enhancing the power network in some ports.
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 The Government Budget for 1432/1433 (2011)
 Water, Agriculture, and Infrastructure Sector:
 Total expenditure amounts to SR 50.8 (US $13.5)
billions, an increase of 10 percent over FY 2010
appropriation..
 Appropriations for new projects include enhancing
water sources, dams and wells, as well as expanding
and improving water and sewage networks. There are
also allocations for new water desalination stations and
upgrading existing stations. New projects will be
undertaken in the industrial cities of Jubail, Yanbu, and
Ras Azur to accommodate new investment projects.
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 The Government Budget for 1432/1433 (2011)
 Specialized Credit Development Institutions and
Government financing programs:
It is estimated to be SR 47 (US $12.5)B. disbursed in
2011 by Specialized credit institutions:
 Real Estate Development Fund.
 Saudi Industrial Development Fund.
 Saudi Credit and Saving Bank.
 Saudi Arabian Agriculture Bank.
 Public Investment Fund.
 Government Lending Program.
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 Actual Outcome of Fiscal Year 1432/1433 (2011)
 Total revenues were SR 1110 billion ($296 billion) in 2011 and expenditure were
SR 804 billion ($214.4 billion).
 The difference between the government plan and their revenues and
expenditure is due to the fact that Saudi government always put there budget
based on the lowest expected price for oil and that because of the government
experience in 1986.
 Therefore, the government put two plans:
 Announced plan for the public which focus on the most important “urgent or priority” projects.
 Unannounced plan which include the less important projects or the one which can be delay.

 The negative point in this strategy is that the government plan is not an accurate
factor for the economy.

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 Actual Outcome of Fiscal Year 1432/1433 (2011)
 The increase of actual over budgeted expenditures of SR 224 billion reflects the
implementation of:
 the royal orders to pay two months' salary bonus to all government employees .
 raising monthly minimum wage to SR 3000, adding the cost of living allowance to the basic salary.
 increasing capital of the Real Estate Development Fund and the Saudi Credit & Saving Bank.
 additional expenditures on projects in the Two Holy Mosques.
 the cost of increased admission to the abroad scholarship program.

 Preliminary estimates indicate that the value of public debt will decline from SR
167 (US $44.5) billions at the end of 2010 to SR 135.5 (US $36.1) at the end of
2011, which represents (6.3) percent of projected GDP for 2011. The stock of
debt is totally domestic.

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 Economic Developments
 Gross Domestic Product (GDP):
 According to Central Department of Statistics and information, GDP is estimated to reach SR 2,163
(US $576.8) billions in current prices in 2011, reflecting a growth of 28 percent compared to 2010.
Private sector is estimated to grow by 14.3 percent in current prices in 2011.
 Overall GDP is estimated to grow by 6.8 percent, with government sector growing by 6.7 percent
and private sector by 8.3 percent in 2011.
 All components of the GDP recorded positive growth in 2011. In particular, the non-oil industrial
sector is estimated to grow by 15 percent.

 General Price Level:

 Inflation, as measured by the cost of living index, is estimated at 4.7 percent in 2011.
 The non-oil GDP deflator showed an increase of 6.1 percent.

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 Economic Developments
 Foreign Trade and balance of payment:
 According to SAMA preliminary data, total exports of goods are estimated to be SR 1,287 (US
$343.2) billions in 2011, representing an increase of 37 percent over 2010.
 Non-oil exports of goods are estimated at SR 153 (US $40.8) billions, reflecting an increase of
about 14.0 percent and representing 12 percent of total goods exported.
 Total imports of goods are estimated at SR 370 (US $98.7) billions in 2011, representing a growth of
2 percent compared to 2010.
 According to the SAMA preliminary data, trade balance is estimated to record a surplus of SR 915
(US $244) billions in 2011, an increase of 59 percent compared to last year.
 Current account is estimated to record a surplus amounting to SR 598 (US $159.5) billions in 2011
compared to SR 250 (US $66.7) billions in 2010, an increase of 139 percent.

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 Economic Developments
 Money and Banking:
 The broad money supply during the first ten months of fiscal year 2011 grew by (10.2) percent
compared to (1.2) percent for the same period of pervious year.
 Bank deposits recorded a growth rate of (8.4) percent during the first ten months of 2011, total
banks claims on public and private sectors increased by (10.1) percent ; also, their capital and
reserves increased by (7.2) percent reaching SR (191) billion (US $50.9).

 Other Developments:
 Fitch confirmed Saudi Arabia sovereign rating at (AA-).
 International Finance Corporation of the World Bank Group has put Saudi Arabia at number (13)
among (183) countries in terms of doing business.
 New entities and fiscal, institutional, and structural reforms have been introduced in 2011 such as
the Ministry of Housing, the Statute of the National Anti-corruption Commission, the law of the
Saudi Red Crescent Authority, the law of government revenues, and the law of civil affairs.

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 References
 Ramady M. (2005). “The Saudi Arabian
Economy”.Springer. Chapter 2
 Saudi Eighth Plan (Ministry of Finance).

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