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Sun 5 Jul 2009 08:43 AM

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Saudi public spending to increase 24% - bank

Samba forecasts a surge in public sector investment following oil price increase.

Saudi Arabia is projected to increase public spending by 24 percent this year after the recent improvement in crude oil prices, a leading bank has said.

The Saudi American Bank Group (Samba) said in a mid-year review of Saudi’s economy said the kingdom’s massive financial reserves could easily cover any increased spending, according to a report in Emirates Business.

"The authorities release only annual fiscal data so it is not possible to track budgetary developments through the course of the year. Nevertheless, we have revised both our oil price and output forecast, albeit slightly," the bank said.

"The net result of this is a revenue projection for 2009 of SR468bn ($124bn) – below our previous forecast but some way above the authorities' budgeted projection of SR410bn.

“Our spending forecast has also been raised somewhat to reflect the surge in public sector investment witnessed in the first half of this year."

Samba said much of the additional spending would probably not show up in the fiscal accounts since a large part of it is being undertaken by government-owned companies rather than the federal government.

"Nevertheless, some will, and we have therefore raised our spending growth forecast to 24 percent, giving total spending of around SR632bn.

"This points to a deficit of SR165bn, or 13 per cent of GDP this year."

Samba anticipated a better outlook for 2010, with a 14 percent rebound in oil prices and a six percent upturn in Saudi crude output.

"Spending growth will moderate somewhat, but will remain high by historical standards at around 15 percent. This will leave a fiscal deficit of 11 percent of the gross domestic product," the bank said.

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