* Slowest rate of planned spending growth in a decade
* Follows big increases in wake of Arab Spring
* IMF had warned budget was heading for deficit by 2016
* Another big budget surplus looks likely next year
* Puts more emphasis on private sector growth
By Angus McDowall
RIYADH, Dec 23 Saudi Arabia's 2014 state budget
projects spending will rise a modest 4.3 percent from this
year's plan, the slowest rate in a decade, suggesting the
kingdom is starting to curb expenditure after years of huge
Spending and revenue are both projected to total 855 billion
riyals ($228 billion) next year, according to the plan announced
by the Finance Ministry on Monday. That compares with
expenditure of 820 billion riyals and revenue of 829 billion
riyals in the original budget for 2013.
"I think they are demonstrating that there is discipline and
commitment to a sustainable fiscal expansion," said John
Sfakianakis, chief investment strategist at MASIC, a Saudi
"Both budgeted spending next year and actual spending this
year have a smaller increase than in previous years. Although
they are still overspending, they're overspending by less."
Actual expenditure and revenue in the world's top oil
exporter often turn out to be much larger than its projections,
with the kingdom posting big budget surpluses, as oil prices
generally come in higher than its conservative assumptions.
Nevertheless, the 2014 budget suggests Riyadh has decided to
rein in fiscal policy after massive expansion driven partly by
the 2011 uprisings in the Arab world. Saudi Arabia escaped major
unrest but boosted welfare spending sharply to buy social peace.
"The Saudi government has been spending generously to deal
with the financial crisis, unemployment and housing problems.
Now there is a need to press on the brakes," said Saudi
economist Abdulwahab Abu Dahesh.
Next year's 4.3 percent rise in planned spending is far
smaller than the 19 percent leap envisaged by the 2013 budget
plan, and the lowest increase since 3.5 percent in 2003, Reuters
The International Monetary Fund told Saudi Arabia this year
it was spending more than it should if it wanted to preserve oil
wealth for future generations, and that its state budget could
fall into deficit by 2016 if expenditure continued rising fast.
Lower state spending growth could now slow the economy. The
Finance Ministry predicted on Monday that gross domestic product
would rise only 3.8 percent this year, down from 5.8 percent in
The ministry did not specify the oil price which it is
assuming in next year's budget calculations, but investment bank
EFG-Hermes estimated the plan assumes an oil price of $65-68 a
barrel and average output of 9.6 million barrels a day.
Brent crude oil is now trading at $111, suggesting
the Saudi budget may again be comfortably in surplus next year.
In 2013, the government is set to post a whopping surplus of 206
billion riyals - equivalent to 7.4 percent of GDP - as actual
spending exceeds the original budget plan by 13 percent but
revenues come in 36 percent above target, the ministry said.
Between 2003 and 2012, state expenditure soared 14 percent
on average every year, while budget plans were overspent by an
average of almost 25 percent, Reuters calculations show.
The ministry's 2014 budget shows authorities will continue
to spend heavily on social welfare projects. It includes funds
to build 465 schools and 11 hospitals, a 3 percent rise in
education spending to 210 billion riyals, and a 25 percent jump
in spending on infrastructure, including new roads and railways
as well as upgrades of ports and airports.
After big public sector wage increases in recent years, the
budget figures suggest a fall in current spending - recurring
expenditure such as salaries and consumable goods - by around
1.5 percent, said Monica Malik, chief economist for equity
research at EFG Hermes Emirates.
"This budget puts more emphasis on the private sector for
job creation and investment. It is making a statement that it's
for the private sector to take the lead," she said.
Saudi Arabia remains vulnerable to any sharp fall of oil
prices, but even in that case it would probably have room if
needed to stimulate the economy with additional state spending.
Public debt totals only 2.7 percent of GDP, the Finance Ministry
said, while the central bank's net foreign assets are worth
almost three years of budget spending.