(MENAFN- The Peninsula) Saudi Arabia will lift state spending to a record in its 2015 budget while covering a deficit with its huge fiscal reserves, the government said, providing the first detailed look at how the world's top oil exporter aims to handle an era of cheap oil.
Financial markets had feared the kingdom might slash spending. But the budget, released by the Finance Ministry, suggests authorities are confident of their ability to ride out low oil prices and see no need for major austerity.
Some analysts believe Riyadh is content to see oil prices fall as a way to squeeze out competing producers in non-Opec nations. The budget figures imply it could pursue this strategy for years if it felt that was necessary.
"We have the ability to endure low oil prices over the medium term," Finance Minister Ibrahim Alassaf told Saudi television after the announcement. He defined the medium term as three to five years but also said oil was expected to rebound late next year or in 2016.
John Sfakianakis, regional director of asset manager Ashmore in Riyadh, said: "The message of the budget is, 'it's business as usual'. They have the will and fiscal capacity to power the economy."
Spending in the 2015 budget is projected at a record SR860bn ($230bn), up 0.6 percent from SR855bn in the 2014 budget plan - the smallest rise in over a decade.
Revenues are projected to drop to SR715bn in 2015 from SR855bn seen in 2014, leaving a deficit of SR145bn. That would be about 5.1 percent of the ministry's estimate of 2014 gross domestic product.
In six months, Brent crude has tumbled from around $115 a barrel - a level at which the kingdom was raking in giant budget surpluses - to $60.
But government reserves at the central bank, built up over four years of ultra-high oil prices, totalled SR905bn in October, enough to cover deficits of the size projected in 2015 for about six years. That excludes the government's other assets and its ability to borrow. Saudi Arabia will continue spending on development projects, social welfare and security despite the oil price slide and challenging global conditions, the ministry said.
That would be positive not only for Saudi Arabia but also for the rest of the Gulf, as Saudi money helps drive the entire region, from the Dubai property market to Bahrain's tourism industry and Kuwaiti construction firms.
As usual, Saudi Arabia did not reveal the oil price assumed in its budget. Monica Malik, chief economist at Abu Dhabi Commercial Bank, said it seemed to be assuming oil at $55 and Saudi output broadly unchanged at 9.5 million barrels per day.
"Saudi Arabia is in a strong position to fund its deficits...It could afford the new oil price for a year or even two," she said.
The budget plan showed heavy spending on education, health and social welfare and state loans supporting job creation. Riyadh increased its focus on these areas after the 2011 Arab Spring uprisings
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.