Saudi Arabia is expected to boost expenditure in 2010 although it approved a record budget for 2009 in a bid to prevent its economy from sliding because of the global financial distress, said a Saudi bank.

The kingdom, the world's dominant oil exporter, will be encouraged to increase spending by a recovery in its oil revenue due to an expected rise in crude prices and nearly 400,000 barrels per day in its output, the National Commercial Bank (NCB) said in an Arabic language study sent to Emirates Business.

The largest bank in Saudi Arabia projected the kingdom's oil export earnings to collapse by nearly 60 per cent in 2009 due to lower prices and a cut of about one million bpd in its output. But it expected earnings to rebound by nearly 26 per cent in 2010 because of higher prices and production.

From about SR565 billion (Dh553.30bn) in 2009, actual expenditure is expected to surge to nearly SR632bn in 2010 while revenue could swell to SR610bn from SR511bn in the same period.

NCB projected actual expenditure in 2009 to surge by nearly SR90bn as the government was stepping up spending to offset a slowdown in private investment and lower domestic credit by banks.

"We expect the kingdom to overshoot budgeted spending by about 18.5 per cent this year and 22 per cent in 2010."

NCB said higher spending in 2010 would be a result of an expected surge in oil prices and production and an increase in the country's non-oil exports.

It predicted Riyadh's oil income to plummet to $ 111bn this year from a record $ 281bn in 2008 as the price of Saudi crude is expected to dive to nearly $ 54 in 2009 from its peak of $ 95.2 a barrel in 2008.

The kingdom's oil output is also expected to average eight million bpd this year compared with nearly 9.1 million bpd in 2008.

"The kingdom's oil production is expected to rise to 8.4 million bpd in 2010 while prices could average nearly $ 65 a barrel," said the study.

"This will boost its oil revenues from $ 111bn this year to $ 141.6bn in 2010. The increase will have a positive impact on the kingdom's current account, trade balance and the budget."

NCB forecast the budget to record a real deficit of around SR51bn in 2009 but expected a surplus of nearly SR27bn in 2010.

Higher oil exports will also turn an expected current account deficit of $ 10bn this year into a surplus of nearly $ 14bn in 2010, it said.

"Higher oil prices and output will ally with increased public spending in 2010 to expand the real gross domestic product by about 3.5 per cent compared with a negative growth of 0.9 per cent in 2009," the study said.

A breakdown showed real growth in the oil sector would decline by about 2.5 per cent in 2009 but rebound by nearly 0.9 per cent in 2010.

The non-oil sector is expected to grow by 1.6 per cent this year and 2.6 per cent in 2010, it said.

As for inflation, the study projected the rate to plunge from nearly 9.9 per cent in 2008 to around five per cent in 2009 before rising to about six per cent in 2010.


Saudi Arabia feels safe

Saudi Arabia has nearly overcome the fallout of the global financial distress and feels safe with the presence of massive foreign financial assets, said the Finance Minister.

Ibrahim Al Assaf said economic prospects in Saudi Arabia, the world's dominant oil power, remains "promising" thanks to the counter-measures taken by the government to mitigate the effects of the crisis.

"The kingdom has almost succeeded in overcoming the global financial and economic crisis," he was quoted by Saudi newspapers as telling the meeting of Islamic Central Bankers and Finance Ministers in Istanbul.

"The policy adopted by the kingdom to save part of the oil revenue surpluses over the past years has enabled it to achieve a degree of safety that has guarded the local economy and saved it from the repercussions of the global crisis."

A sharp rise in oil prices and output since 2000 boosted Saudi Arabia's foreign assets to more than SR1.7 trillion (Dh1.6trn) at the end of 2008 from less than SR200 billion at the end of 2000.

The assets have plunged by more than SR200bn over the past eight months as the kingdom is believed to be withdrawing funds to finance the record high 2009 budget it approved to counter the global crisis and prevent a sharp contraction.

The surge in its petrodollar income allowed it to amass a cumulative fiscal surplus of $ 335bn during 2004-2008.