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Mon 26 Dec 2011 05:50 PM

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Saudi Arabia budgets for big decrease in 2012 surplus

Gulf's largest economy plans to spend $184bn next year versus estimated $214bn this year

Saudi Arabia budgets for big decrease in 2012 surplus
HRH Saudi King Abdullah Bin Abdul Aziz Al Saud

Saudi Arabia's government plans to spend SR690bn ($184bn) in 2012, cutting expenditure from an estimated SR804bn this year, when social spending was ramped up in an effort to ensure political stability.

Announcing next year's state budget on Monday, the finance ministry said it projected the budget surplus, which depends largely on oil revenues, would shrink to just SR12bn from SR306bn this year.

Traditionally, the Saudi government makes conservative projections for oil revenues, leaving room for its actual budget surpluses to come in much larger than initially forecast.

But analysts said the 2012 budget plan showed the government was keen to demonstrate it was aware of the risks of overspending, after a year in which it boosted expenditure to a record as social unrest hit other countries in the Arab world.

"There's a balancing act here in that they want to demonstrate some fiscal rigour or conservatism in the budget figures, but there's also a willingness to be flexible, both in ensuring the continuity of the infrastructure and capital spending ventures, but also in the face of the global economic environment," said Jarmo Kotilaine, chief economist of National Commercial Bank in Jeddah.

In its original budget for 2011, the government envisaged spending of SR580bn. After uprisings began in the Arab world early this year, Saudi Arabia announced extra spending on infrastructure and welfare which the International Monetary Fund estimated at $110bn over several years.

In the 2012 budget announcement, the finance ministry said it had set aside SR250bn from the 2011 budget surplus to fund one of the special projects, the construction of 500,000 homes.

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