Saudi Arabia - record budget for 2015
Published 5 January 2015
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0.1 This publication was archived on 5 August 2016.
This article is no longer current. Please refer to Overseas Business Risk - Saudi Arabia.
0.2 Summary
Saudi Arabia announces record budget of $229bn for 2015, with a forecast 5% deficit. Major spending continues in sectors closely aligned with UKTI HVOs, with strong budget allocations on Education, Healthcare, Transport and Water.
0.3 Detail
2015 Budget
The Saudi Council of Ministers endorsed the Saudi fiscal budget for Financial Year 2015 (Hijri Years 1436-7) on 25 December. Budgeted expenditure of SR860bn (US$229bn; £148bn) makes the 2015 Saudi budget the largest ever with a 0.6% uplift on 2014. Support is maintained to priority areas of spending established in previous years, despite the current drop in the oil price. The King’s accompanying statement highlighted the budget’s intention to enhance “citizens’ progress and prosperity”, including improving employment prospects.
Income of SR715bn is predicted for 2015, leaving a deficit of SR145 bn ($39bn; £25bn; 5% GDP) to be financed from net central bank (SAMA) foreign reserves which stood at $736bn, or 98% GDP, at the end of November. Preliminary out-turn figures for 2014 suggest a deficit this year of SR54bn (less than 2% of GDP), showing that reduced oil revenues have already affected Saudi finances. The 2015 figures represent the first budgeted Saudi deficit since 2011 - although that year rising oil prices and conservative budgeting ultimately led to a comfortable surplus. The continued spend despite reduced income is in line with the authorities’ counter-cyclical fiscal policy, continuing to invest in infrastructure and human capital to stimulate growth, after establishing significant reserves during years of high income from oil revenues.
Education
Education is allocated 25% of total budget expenditure in 2015 (£37bn), including construction of three new universities, major refurbishment of other universities and upgrading of hundreds of new schools and children’s sports centres across the country. £3.8bn is allocated for the support of over 207,000 Saudi students and their families outside KSA (including the 15,000 or so in the UK). Almost £1bn goes to the Technical and Vocational Training Corporation, including £400m for a new “Colleges of Excellence” project.
Health and social
Healthcare and social affairs receives the largest boost to spending, with an increase of almost 50% taking it to 19% of the total (£27.6bn). This includes funding for three new hospitals, three blood banks, and many primary care and specialist clinics across the country, as well as expansion and upgrading of existing facilities and associated training.
Transport and infrastructure
Transport and Infrastructure takes the third-largest share of identified priority areas at 7.3% of the total, a reduction of 5% on 2014 (but still almost £11bn), with more than half of this allocated to upgrading roads, port and rail projects and upgrading international airports.
Water and agriculture
Water, agriculture and related infrastructure take another 7% (£10bn) including £4bn of funding for new and current projects to increase available water resources and improve water treatment.
Municipal services
Municipal services provided by the provinces and cities are expected to account for some 5% of government spending.
Other priorities
As is customary, the budget fails to identify the purpose of a large part (approximately 36%, £53bn) of total expenditures. This can be expected primarily to cover Defence and Security spending.
Oil and non-oil revenues
Saudi budget announcements do not specify either the oil price used for the budget calculations or the breakdown of expected source of revenue from oil and non-oil sources. In previous years the budget has clearly been calculated on a conservative oil price estimate considerably below the market level (eg around $70pb in 2014), with a reasonable expectation of a more generous outcome. For 2015, Saudi Finance Minister Al Assaf has told interviewers that a “more realistic” price has been used. Analysts say the 2015 budget calculations are based on an average Saudi oil price close to its current level; estimates vary between $55 to $63, equivalent to Brent prices of $59 to $67. But the (undeclared) fiscal breakeven oil price, which takes account of budgeted and unbudgeted expenditure, is likely to remain closer to $90.
Actual spend
The preliminary 2014 actual spending and revenue figures, as in previous years, demonstrate a wide differential from the budgeted figures, reflecting both the conservative oil price assumption and the continued Saudi tendency to overspend significantly (in recent years usually counterbalanced by high oil revenues). Actual expenditure was SR 1100bn ($293bn; £190bn), 29% above the 2014 budget, with actual revenue of SR 1046bn ($279bn; £180bn), 22% above the budget figure. The fiscal out-turn announcement for 2014 has officially attributed the overspend to megaprojects to expand the two Holy Mosques (in Mecca and Medina) and to international financial aid.
Macroeconomic data
Initial 2014 Saudi official macroeconomic data issued with the budget show the Saudi economy in good health as it enters a more uncertain period. Nominal GDP growth of 1.1% in 2014 to SR 2.8trn ($752bn; £486bn) reflects a decline of 7.2% in the oil sector with growth of 8.2% in non-oil activities. Assessment at purchasing power parity gives a slightly different picture. Real GDP growth for 2014 accelerated to 3.6% from 2.7% in 2013, with the oil sector growing 1.7% and non-oil economic growth recorded as 5.2%. Non-oil private sector growth was 5.7%, with construction, transport, manufacturing and retail sectors all exceeding 6% growth. Inflation for 2014 averaged 2.7%, down from 3.5% in 2013. A current account surplus of $106bn in 2014 (down from $134bn in 2013) reflects the drop in average Saudi oil sales prices from $104pb in 2013 to $96pb in 2014, partially offset by a 2.6% reduction in overall imports. Declared Saudi Government debt has been further reduced to 1.6% of GDP from 2.7% in 2013.
0.4 Disclaimer
The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.