The Ministry of Finance issued a statement today highlighting the economic developments of 2008 and announcing the budget for fiscal year 2009 (1430/1431 H).

The Ministry said that despite the decline in oil price during the last part of 2008, the FY 2009 budget will continue to focus on projects that ensure sustainable and balanced development, as well as job creation. The budget will give particular attention to infrastructure and social services, especially education, health, social affairs, municipal services, water and sewage and roads. Moreover, the budget puts a special emphasis on projects related to science and technology and e-government.

The FY 2009 budget projects total revenues of SR 410 billion [$109.3 billion], expenditures of SR 475 billion [$126.7 billion] and total allocations for new and existing projects of SR 225 billion [$60 billion]. The fiscal deficit for 2009 is projected at SR 65 [$17.3 billion].

For 2008, the Ministry projects total revenues of SR 1.1 trillion [$293.3 billion] and total expenditures of SR 510 billion [$136 billion].

Preliminary estimates indicate that public debt will drop to around SR 237 billion [$63.2 billion] at the end of FY 2008, which represents 13.5 per cent of projected GDP.

Appropriations for the major sectors in 2009 are as follows:

Education and manpower development:

a. Total expenditure amounts to SR 122.1 billion [$32.6 billion], including technical and vocational training.

b. Continued implementation of the King Abdullah Project for Education Development amounting to SR 9 billion [$2.4 billion] and the creation of the recently approved Education Development Holding Company. New projects include 1,500 new schools, in addition to 3,240 schools currently under construction, and the rehabilitation of 2,000 existing buildings.

With respect to higher education, the new budget includes appropriations for the construction of the new female university campus (Princess Norah University) in Riyadh and the Medical City for King Saud University. The scholarship program will continue next year. In addition, the implementation of the National Plan for Science and Technology, amounting to SR 8 billion [$2.1 billion], is under way.

Health and Social Affairs:

a. Total expenditure amounts to SR 52.3 billion [$13.9 billion].

b. Projects include new primary care centers throughout the Kingdom, 86 new hospitals with a capacity of 11,750 beds and further development of the Saudi Red Crescent.

c. For social services, the new budget includes appropriations to build sport clubs, social centers and social welfare and labor offices. In addition, it includes further support for poverty reduction programs that will shorten the time frame required to eradicate poverty.

Municipality services:

a. Total expenditures amount to SR 19.8 billion [$ 5.3 billion].

b. New projects include inter-city roads, intersection and bridges and roads lights, which should help ease traffic bottlenecks. They also include sanitary, trash collection and other environment-related projects.

Transportation and telecommunication:

a. Total expenditures amount to SR 19.2 billion [$5.2 billion].

b. New projects include roads totaling 5,400 km, to be added to the 30,000 km of roads currently under construction; ports; airports; railroads development and new postal services. The existing paved road network stands now at 56,000 km.

Water, Agriculture, and Infrastructure Sector:

a. Total expenditures amount to SR 35.4 billion [$9.4 billion].

b. New projects for the two industrial cities of Jubail and Yanbu.

Specialized Credit Development Institutions and Government financing programs:

a. Replenishment of the resources of the Real Estate Development Fund by SR 25 billion [$ 6.7 billion] over a period of five years starting from FY 2008.

b. Deposit of SR 10 billion [$ 2.7 billion] in the Saudi Credit and Saving Bank.

c. Estimated SR 40 billion [$10.7 billion] to be disbursed by Government Specialized Credit Institutions (Real Estate Development Fund, Saudi Industrial Development Fund, Saudi Credit and Saving Bank, Saudi Arabian Agriculture Bank, Public Investment Fund and Government Lending program) to the beneficiaries of their lending programs.

Economic Developments in 2008 Gross Domestic Product

According to Central Department of Statistics and Information, GDP is projected to grow in 2008 by 22 percent in current prices and 4.2 percent in constant prices, reaching SR 1.753 billion [$467.5 billion]. The oil sector is expected to grow by 34.9 percent and the private sector by 8 percent in current prices.

Private sector GDP is estimated to grow by 4.3 percent in constant prices. In particular, the non-oil industrial sector is estimated to grow by 5.4 percent; construction sector by 4.1 percent; electricity, gas and water sector by 6.3 percent; transport and communication sector by 11.4 percent; wholesale, retail, restaurants, and hotels by 4.2 percent and finance, insurance and real estate by 2.2 percent in constant prices. In addition, private sector contribution to GDP is expected to be 46 percent in constant prices.

General Price Level

Inflation, as measured by the cost of living index, is estimated by 9.2 percent in 2008, while the non-oil GDP deflator showed an increase of 3.6 percent.

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 31.2 percent, reaching SR 1.226 billion [$326.9 billion] in 2008. Non-oil exports of goods are expected to grow by 10 percent, amounting to SR 115 billion [$30.7 billion], representing 10.2 percent of total goods exported.

Total imports of goods and services are expected to grow by 12 percent in 2008, amounting to SR 610 billion [$162.7 billion]. According to SAMA’s preliminary data, the trade balance is estimated to record a surplus of SR 820.2 billion [$218.7 billion] in 2008, an increase of 45.8 percent compared to last year. The current account is estimated to record a surplus amounting to SR 564.8 billion [$150.6 billion] in 2008 compared to SR 354.3 billion [$ 94.5 billion] in 2007.

Money and Banking

The broad money supply during the first ten months of FY 2008 grew by 14 percent. Bank deposits recorded a growth rate of 14.1 percent during the first ten months of FY 2008 and total bank claims on public and private sectors increased by 30 percent. Banks’ capitals and reserves increased by 15.4 percent, reaching SR 157 billion [$41.9 billion].

Capital Market

The Capital Market Authority (CMA) continued to develop the necessary by-laws of the capital market. There were 13 new IPOs during 2008, increasing the number of companies listed in the stock market to 127. The CMA licensed 30 new brokerage and portfolio management firms.

Other Developments:

A series of developments in 2008 will serve to enhance confidence in the Saudi economy. They include:

a. Fitch Ratings upgraded Saudi Arabia’s sovereign rating to AA-.

b. The IFC 2009 Report on Ease of Doing Business ranked Saudi Arabia at 16th among 181 countries, up from 24th in 2008 report.

c. The Executive Board of the International Monetary Fund has commended Saudi Arabia for its leading role in stabilizing the oil market through the ambitious investment and structural reform program that will lead to strong growth in the private sector.

d. New fiscal, institutional, and structural reforms have been introduced in 2008. These included the creation of the Public Commission of Railroads, the Consumer Protection Association, the Cooperative Associations Law, the Public Sector Performance Center, the National Strategy for Health and the Environment and National Water Company.