SHARE PRICES ON THE SAUDI stock market jumped on the announcement of this year's government spending plans at the beginning of January. The business community was evidently encouraged by a growth budget which forecasts spending almost 9% higher than the planned figure for last year. Whatever worries may be felt abroad about the kingdom's chronic budget deficits, the government evidently has no intention of embarking on a deflationary strategy. The Finance Ministry says growth was 5% last year; it is likely to be the same or higher in 1993.
The kingdom has some reason to be pleased with itself. Saudi budgets tend to be rather fuzzy affairs, but it looks as if 1992 worked out roughly as planned. Spending may have exceeded expectations, while cuts in items such as utility charges and petrol prices during the year will have reduced revenues. But the gap was probably made up from greater than projected oil income, itself due to the high level of crude production during the year. All in all, the budget deficit will have come in around the planned SR30bn ($8bn) level.
This year's figures predict a similar result. The increase in spending is set against an expected 6% rise in revenues (of which over two-thirds is reckoned to come from oil export earnings). At SR27.8bn, the deficit will be slightly below last year's shortfall. The hoped-for SR169bn in revenues can probably be attained even if oil prices sag in 1993 as they are likely to do.
If they were to fall drastically, as some analysts fear, Saudi Arabia has shown itself prepared in the past to boost production. Current output is around 8.4m b/d and no-one doubts that the kingdom can produce more than that (though how much more is a matter of debate). In fact, Saudi oil policy has never been determined by budgetary considerations. If the government finds itself suffering from spending constraints as the year progresses, it will simply resort to payments delays and (possibly) the occasional, discreet loan on the international capital markets.
There should be enough room, therefore, to accommodate the big spending items in the budget which indicate where the government's priorities lie, Significantly, defence outlays are up 14% over last year, taking 31% of total expenditure. Expect a lot of new orders for military hardware in 1993. Subsidies show the biggest increase, up by nearly a third on 1992, testifying to the government's concern about mollifying the public by keeping up living standards.