The Ministry of Finance issued a statement today on the Kingdom’s FY 2007 State budget. In the statement, the Ministry gave an overview of FY 2006 and provided highlights of the new budget for FY 2007 as well as recent economic developments.
Outcome of FY 2006:
The Ministry of Finance projects revenues to reach SR 655 billion [$175 billion] in 2006, while expenditure amounts to SR 390 billion [$104 billion]. There were increases in some expenditure items such as projects in the two Holy Mosques and other religious sites (mashair), subsidies, and an increase in appropriation to cover higher admission in universities and scholarship programs.
With regard to the budget surplus, according to Royal Order, SR 40 billion [$106.7 billion] of the surplus will be allocated to additional development projects; the capital of the Public Investment Fund will be increased by SR 20 billion [$5.3 billion], transfer SR 100 billion [$26.7 billion] to the government’s reserves account; and the remaining surplus will be allocated to pay down part of the public debt.
Preliminary estimates indicate that public debt is expected to drop to around SR 366 billion [$97.6 billion] at the end of FY 2006, representing 28 percent of the expected GDP for 2006, compared with 40 percent the previous year.
The State Budget for FY 2007:
This year’s budget is a continuation of the government’s focus on optimizing available resources and giving priority to the basic social infrastructure and services, especially in education, health, social affairs, municipal services, water and sewage, and roads. Moreover, the budget places special emphasis on capital expenditures that will create more job opportunities and enhance economic activities, and boost economic growth.
The following are the main highlights of the 2007 budget:
1- Total revenues for FY 2007 are projected at SR 400 billion [$106.7 billion].
2- Government expenditures for FY 2007 are budgeted at SR 380 billion [$101.3 billion].
3- Total new capital budget (new projects and increase in existing projects) amounted to SR 140 billion [$37 billion].
Appropriations for the main development and public service sectors for 1427/1428 (2007) are as follows:
1. Education and Manpower Development:
a. Total expenditure amounts to SR 96.7 billion [$25.7 billion], including technical and vocational training.
b. New capital budget total SR 29 billion [$7.7 billion]. New projects include 2,000 new schools (in addition to 4,800 schools currently under construction) and the refurbishment of 2000 existing school buildings.
c. With respect to higher education, the new budget includes opening of four new universities in Tabuk, Al-Baha, Najran, and girls’ university in Riyadh, a new university hospital (in addition to five university hospitals under construction), completing infrastructure of other universities, building of 56 colleges, and opening of 19 new colleges. Also, the scholarship program in medicine, engineering, computer science, law and accounting will continue next year.
d. In the technical and vocational training sector, the new budget includes 7 new technical colleges, 12 technical and vocational training centers, opening of 5 new technical institutes for girls, and 9 vocational training centers. In addition, the new budget includes appropriation for the national plan for science and technology.
2. Health and Social Affairs:
a. Total expenditure amounts to SR 39.5 billion [$10.5 billion].
b. New capital budget total SR 5.6 billion [$1.5 billion]. New projects include over 380 primary care centers, 13 hospitals with a capacity of 1100 beds, expansion and development of existing health facilities, and furnishing newly completed hospitals. Meanwhile, there are 64 hospitals under construction which will add 9,850 beds.
c. With respect to social services, the new budget includes appropriation to build social centers, social welfare and labor offices. Also, it includes funds to support poverty reduction programs and increase in handicapped allocations.
3. Municipal Services:
a. Total expenditure amounts to SR 15.5 billion [$4.1 billion].
b. New capital budget total SR 11.1 billion [$2.9 billion]. New projects include intercity roads, intersection and bridges, road lights, and cleaning-related projects.
4. Transportation and Telecommunications:
a. Total expenditure amounts to SR 13.6 billion [$3.6 billion].
b. New capital budget total SR 9.3 billion [$2.5 billion]. New projects include roads totaling 8,000 km to be added to 16,000 km of roads currently under construction, ports, airports, and railroads development, and new postal services.
5. Water, Agriculture, and Infrastructure Sector:
a. Total expenditure amounts to SR 24.8 billion [$6.6 billion].
b. New capital budget total SR 21.7 billion [$5.8 billion]. They include projects for water, sewage, and desalination projects amounting to SR 16.4 billion [$4.4 million]. In addition, the budget includes appropriations for the two industrial cities of Jubail and Yanbu, agricultural projects, and flourmill projects.
5. Specialized Credit Development Institutions and Government Financing Programs:
a. As mentioned earlier, there will be an increase in the capital of the Public Investment Fund by SR 20 billion [$5.3 billion], and it will continue with other lending institutions to provide credits to projects and services in the areas of industry, agriculture, and major infrastructure projects.
b. Loans disbursed by Real Estate Development Fund, Saudi Industrial Development Fund, Saudi Credit and Saving Bank, and Agricultural Bank since their inception and up to the end of 2006 amounted to SR 216 billion [$57.6 billion]. SR 14 billion [$3.7 billion] is expected to be disbursed in 2007.
c. A private higher education scholarship program will be initiated in 2007.
d. Saudi Export Program managed by the Saudi Fund for Development financed SR 6.7 billion [$1.8 billion] up to the end of 2006.
Economic Developments in 2006:
1. Gross Domestic Product
According to Central Department of Statistics and information, GDP is estimated to grow in 2006 by 12.4 percent in current prices 4.2 percent in constant prices, reaching SR 1,301 billion [$347 billion]. Oil sector is expected to grow by 16 percent and private sector by 7.9 percent in current prices.
The private sector GDP is estimated to grow by 6.3 percent in constant prices. The non-oil industrial sector is expected to grow by 10.1 percent; construction sector by 6.3 percent; electricity, gas, and water sector by 5.5 percent; transport and communication sector by 9.5 percent; wholesale, retail, restaurants, and hotels by 5.2 percent; and finance, insurance and real estate by 5.1 in constant prices. In addition, private sector contribution to GDP is anticipated to be 44.8 percent in constant prices.
2. General Price Level
Inflation, as measured by the cost of living index, increased by 1.8 percent in 2006, while the non-oil GDP deflator increased by 2.1 percent.
3. Foreign Trade and Balance of Payment
According to Central Department of Statistics and information, total exports of goods and services are expected to grow by 15.1 percent reaching SR 808 billion [$215 billion] in 2006. Non-oil exports of goods will grow by 10.8 percent, amounting to SR 79 billion [$21 billion], representing 10.1 percent of total goods exported.
Total imports of goods and services will grow by 27.2 percent in 2006, amounting to SR 390 billion [$104 billion], while imported goods will grow by 9.4 percent, reaching SR 243.7 billion [$64.9 billion].
According to SAMA preliminary data, trade balance is estimated to record a surplus of SR 553.4 billion [$147.6 billion] in 2006, an increase of 17.5 percent. Current accounts record a surplus amounting to SR 358 billion [$95.5 billion] in 2006 compared to SR 337.7 billion [$90 billion] in 2005, an increase of 6 percent.
4. Money and Banking
The government continued implementing macroeconomic policies aimed at maintaining price and exchange rate stability. The broad money supply during the first ten months of fiscal year 2006 grew by 11.8 percent compared to 8.8 percent for the same period of pervious year.
With regard to banking sector, bank deposits recorded a growth of 13 percent during the first ten months of 2006, total banks claims on public and private sectors increased by 4.9 percent; also, their capital and reserves increased by 20.5 percent reaching SR 80.3 billion [$21 billion].
In addition, the number of banks and insurance companies has increased to 22, and 15 respectively.
5. Capital Market
The National Share Index stood at 7,950 as of December 13, 2006, compared to 16,712 at the beginning of the year. The value of shares traded amounted to SR 4,998 billion [$1.3 trillion] at the end of November 2006 compared to SR 4,139 billion [$1.1 trillion] in 2005. The number of shares traded for the same period reached 49.2 billion shares.
The Capital Market Authority (CMA) continued to develop the necessary bylaws of the Capital Market Law, namely the bylaws of real estate investment funds and corporate governance. In addition, CMA licensed 41 companies and offices to perform consultancy and portfolio management.
6. Other Developments
A number of initiatives and government actions that should enhance the confidence of the private sector leading to its robust growth have taken place, these include:
a. Standard & Poors and Fitch have upgraded Saudi Arabia’s sovereign rating to A+.
b. New fiscal, institutional, and structural reforms were introduced in 2006, such as the electricity law, government procurement law, contractor classification law, civil aviation tariff law, social welfare law, and the law of the Saudi Credit and Saving Bank.
c. The establishment of the Saudi Railroad Company. In this regard, PIF launched the construction of the railroad that begins from Um Aljalameed in the north up to Ras Alzour at the Arabian Gulf.
d. The approval of restructuring of the water sector and the establishment of the National Water Company.
e. The initiation of the National E-Government Program.
f. Active participation of the private sector in the government procurement with the total number of government contracts signed with the private sector in 2006 amounted to 2,600 contracts with a value around SR 57.3 billion [$15.2 billion].