TREASURY RESEARCH 2013 [ B U D G E T C O M M E N T A R Y ] Saudi 2013 budget foresees a 19% increase in expenditure to SAR 820 billion from the SAR 690 budgeted figures in 2012, indicating that Saudi government is still taking an expansive spending approach Education and training budget allocation is SAR 204 billion in 2013 compared to SAR 168.6 billion in 2012, an increase of 21%. Revenues in 2013 are budgeted at SAR 829 billion, which is 18% higher than 2012 budgeted figure. Inside this issue: Saudi Arabia 2013 Budget Oil Market Outlook Budget Performance 2012 In 2012, the budget statement has anticipated a surplus of SAR 12 billion, while the preliminary data showed that the kingdom has achieved a SAR 386.5 billion surplus, which is 32 times more than initially anticipated. Economic Performance in 2012 Economic Outlook 2013 In 2012, Saudi Economy grew by 6.8%, according to primary estimate released in the budget statement. Meanwhile, the budget statement revised up the real economic growth of 2011 to 8.5% from 7% initially estimated. Abdulkarim Alkadri Research Analyst researchdesk@bankalbilad.com Economic Research & Analysis Treasury division Bank Al Bilad P.O. Box 140 Riyadh 11411 Tel: +966 1 479 8297 Fax: +966 1 476 4879 www.bankalbilad.com Important disclosures can be found in the Disclosures Appendix all rights reserved. Bank Al Bilad Published on: 29 th of December 2012 1 Economic Research Treasury Division
2007 2008 2009 2010 2011 2012E Real Sector Nominal GDP Nominal GDP (SAR billion) 1,443 1,786 1,413 1,690 2,163 2,727 Nominal GDP (USD billion) 385 476 377 451 577 727 Real GDP (1999) Oil Sector (SAR billion) 240 250 231 236 246 260 Oil sector growth % (4%) 4% (8%) 2% 4% 5.5% Non oil private - sector (SAR billion) 373 390 400 422 457 491 Non oil private - sector growth % 5% 5% 3% 5% 8% 7.5% Non oil government - sector (SAR billion) 180 186 196 207 221 235 Non oil government - sector growth % 3% 4% 5% 6% 7% 6.2% Real GDP 793 826 827 865 924 987 Real GDP Growth 2% 4% 0% 5% 7% 6.8% Prices GDP deflate 182% 216% 171% 195% 234% 276% Inflation CPI % 4.13% 9.91% 5.06% 5.31% 5.01% 4.50% Fiscal Indicators Actual Revenue (SAR billion) 643 1,101 510 742 1,118 1,240 Actual Expenditure (SAR billion) 466 520 596 654 827 853 Budget Balance (SAR billion) 177 581-87 88 291 387 External Indicators Export (SAR billion) 874 1,175 721 942 1,368 1,485 Import (SAR billion) 338 432 358 401 494 480 Trade Balance (SAR billion) 536 744 363 541 874 1,005 Current Account Balance Current Account Balance (SAR billion) 350 496 79 250 594 669 2 Economic Research Treasury Division
Saudi Arabia 2013 Budget another stimulatory budget audi 2013 budget foresees a 19% increase in expenditure to SAR 820 billion from the SAR 690 budgeted figures in 2012, indicating that Saudi S government is still taking an expansive spending approach. In the current global recessionary conditions, Saudi government is determent to sustain economic growth levels. While Saudi Economic structure has helped the kingdom to adopt an aggressive spending approach, it is worth mentioning that the most of this spending have concentrated on education and training, strengthening infrastructures and targeting more foreign investments. Expenditures Total expenditure is budgeted at SAR 820 billion in 2013, which is 19% higher than 2012 projected figure and making it the largest Saudi budget ever. In 2013, the government continues to target the socio economic infrastructures as it allocates significant portion of the projected expenditures to cover education, healthcare and social development programs. The government allocates 25% of its budget on education. Investment spending is budgeted at SAR 285 billion in 2013, indicating the largest portion of 2013 spending will go to current spending. The figure is 7.6% higher than the 2012 budgeted figure. and here are some of the key areas of priority emphasized by 2013 budget statement: Education and training budget allocation is SAR 204 billion in 2013 compared to SAR 168.6 billion in 2012, an increase of 21%. In continuing to support the education sector, 2013 budget has allocated 25% of its expenditures to support different levels. The new budget has allocated SAR 3.6 billion to build 539 new schools, adding to the 1900 schools already under construction from the previous budget allocations. Moreover, the budget has allocated SAR 3.250 billion to rehabilitate 2000 schools. Higher education has the lion s share in this budget, as the government allocated more than SAR 39.3 billion to complete the construction of university cities, university hospitals and to support King Abdullah scholarship programs. Furthermore, the current budget allocated SAR 3.5 billion to support technical and vocational training, compared to 1 billion in 2012 budget. 3 Economic Research Treasury Division
Health and social affairs budget allocation rose by 16% to SAR 100 billion in 2013 which accounts for 12% of the total budget allocations. The new allocations include new health projects to build a new 17 hospitals and healthcare centers. Meanwhile, Saudi government continues to support different social security programs. Municipality has planned to receive a SAR 36 billion in 2013, up from SAR 29 billion in 2012. The new allocations are to complete the old road projects and to build new intercity roads and bridges. Transportation and telecommunications budget allocation reached SAR 65 billion, which is 16% higher than 2012 and accounts for 8% of the total budget. The new allocation is expected to cover new roads, ports, railways and airports, in addition to the two industrial cities (Al Jubail and Yanbu ) and Ras Al khair (Minerals Industrial City). Budget allocation for water, agriculture and related infrastructure is SAR 57 billion in 2013, which is 11% higher than 2012. Financing is dedicated to provide drinking water and to enhance water resources, sewage services and for the construction of dams and wells. The largest government spending is allocated to other categories. It is more likely that defense and security spending is included in these categories. Other categories budget allocation equals SAR 290 billion which is 28% higher than 2012. Revenues Revenues in 2013 are budgeted at SAR 829 billion, which is 18% higher than 2012 budgeted fi gure. As Saudi budget does not disclose its revenue assumptions. We estimated that Saudi oil revenues will cover 90% of the total budget, with 9.7 mb/d production making the budgeted price around $70 pb, indicating a less conservative budget revenue estimation 4 Economic Research Treasury Division
Oil Market Outlook Oil Prices are expected to fall in 2013, as a reasonable result of the weak economic fundamentals around the world. Brent crude oil is projected to decline according to EIA from average $ 112 per barrel in 2012 to $104, while WTI price is estimated to decline from $89 per barrel in 2012 to $88. Meanwhile, Saudi export crude oil is expected to average $99 to $100 in 2013. World oil demand is expected to rise less than 1% as a result of uncertainty surrounding the future of global economic growth. (OPEC expected that oil consumption will increase in 2013 by 0.87% or (0.77 mb/d) y/y. OPEC expectations are not very far from IEA which expected oil demand to grow by 0.8 mb/d to 90.4 mb/d) In the light of the current economic slowdown, the outlook for oil consumption is still pessimistic; especially in the U.S and Europe (demand for OPEC crude is expected to decline by 0.4 mb/ d in 2013). Meanwhile, emerging markets like china is expected to maintain its position as the main driver for oil consumption growth around the Globe. According to OPEC 23.46% of total oil consumption is expected to go to Chain and other Asian countries. Non-OPEC oil Supply is expected to grow by 0.90 mb/d in 2013, reaching 53.83 mb/d in average according to OPEC December Report. United States of America is expected to control the majority of this growth (U.S. oil supply is expected to increase by 0.41 mb/d to 10.26 mb/d in average during 2013). On the flipside, the geopolitical events in the MENA region is expected to continue affecting oil supply as tensions in Syria, Yemen, Iraq and Sudan as well as the global sanctions over Iranian oil exports have decreased the supply by more than 1 mb/d in the last quarter of 2012. Saudi Arabia, among other GCC producers has worked to compensate for the shortage in the oil market. OPEC has showed no desire to change the output in the short-run, Saudi Arabia has promised in many occasions to keep adjusting its productions to meet the cus- 5 Economic Research Treasury Division
Albilad 2013 Budget Forecasting We expect a budget surplus of SAR 92.2 billion in 2013. We estimated Saudi Arabia oil production will average 9.7 mb/d. we estimate total oil revenues to the budget at SAR 986 billion and non-oil revenue at SAR 75 billion. Spending in 2013 is expected to be higher than what we have seen in the budget statement, out of the last year, Saudi Arabia actual government spending has averaged 22.3% higher than the budgeted amount from 2000 till 2011. In line with the historical trend we are expecting an actual spending of SAR 1,043. According to news Saudi government plans to pay $100 billion in a plan to reorganize Mecca area and expand the grand mosque to accommodate a 2 million pilgrims at all times, more than $10 billion to be spent next year. Furthermore, Saudi Arabia pursues to maintain its strategic stocks of major commodities. The Most recent tensions in the Arabian Gulf have promoted GCC countries especially Saudi Arabia to increase spending on defense systems in order to secure oil shipments through Hormuz strait. Moreover, Pipeline projects as an alternative to shipping oil (in a step to move away from the tension area) are very costly which gives us another evidence to increase our estimations for 2013 spending. As we refer to the importance of government spending in sustaining economic growth, it is essential to remember the IMF recommendations concerning fiscal reforms, meaning that government spending will not continue forever Budget Performance 2012 In 2012, the budget statement has anticipated a surplus of SAR 12 billion, while the preliminary data showed that the kingdom has achieved a SAR 386.5 billion surplus, which is 32 times more than initially anticipated. Higher oil prices during 2012, combined with above average crude production, were the main reason behind the larger surplus. 6 Economic Research Treasury Division
In the first 11 months of 2012, Saudi Arabia daily oil production averaged 9.8 million barrel per day compared to a 9.2 mb/d oil production in 2011. As a result of oil revenues, the government exceeded its targeted revenues. Actual expenditure was SAR 853 billion, which is SAR 163 billion higher than initially anticipated. The divergence is because of the 13th additional salary in 2012, while the extra money has been paid to cover king Abdullah project to expand the two holly mosques. Meanwhile Hafez program is expected to cost around SAR 30 billion until the end of the year. Moreover, Saudi government has succeeded at reducing its domestic debt to SAR 98.8 billion, down from SAR 135.5 billion in 2011. Economic Performance in 2012 Real GDP: In 2012, Saudi Economy grew by 6.8%, according to primary estimate released in the budget statement. Meanwhile, the budget statement revised up the real economic growth of 2011 to 8.5% from 7% initially estimated. The increase in oil GDP came in line with the unprecedented oil production in 2012. Oil sector grew by 5.5%, while non-oil GDP grew by 7.2%. Nominal GDP grew to SAR 2.727 trillion at current price, which is 8.6% higher than 2011 level. CPI inflation increased by 2.9% y/y in 2012 (2007- price level) and 4.5% (1999-Price level), a little bit lower than the 5%y/y in 2011. Meanwhile, Non-oil GDP deflator (another inflation measure) is expected to increase by 3.8% y/y in 2012. Current Account Surplus is expected to reach all -time high at SAR1.005 trillion in 2012 according to preliminary estimation by SAMA, meaning that account surplus increased by 10% over the last year due to high oil and non-oil exports. Economic Outlook 2013 We believe that Saudi economic growth will continue to gain momentum in 2013, due to stable (above average) oil production. While estimated decrease in oil prices is expected to offset the oil production revenue. As a result, oil export bill is forecasted to increase in 2013. Government spending, which also plays a vital role in supporting growth will be one of the main reasons for growth in 2013. Economic growth in Saudi Arabia is forecasted to grow by 4.3% in 2013, according to our estimation and in line with key energy agencies assumptions. CPI inflation is expected to average 4.4% during 2013 as domestic inflation pressure is most likely to remain high, especially rental inflation. 7 Economic Research Treasury Division
Disclosure appendix Analyst Disclaimer The research analyst (s) responsible for the content of this research report certify that the views expressed and attributed to the research analyst (s) in the research report accurately reflect their personal views about the subject matters discussed. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the research report. The views of the author (s) do not necessarily reflect the views of the bank al Bilad and are subject to change without notice. Additional disclosures This report is dated as at 29 December 2012. All market data included in this report are dated as at close 29 December 2012, unless otherwise indicated in this report. Disclaimer This report is prepared for information purpose only. It should not be construed as an offer to sell or a solicitation of an offer to purchase or subscribe to any investment. Although the information contained in this report is obtained from many sources believed to be reliable, Bank Al Bilad does not guarantee its completeness or accuracy. To the extent permitted by applicable laws and regulations in the Kingdom of Saudi Arabia, neither Bank Al Bilad nor any of its affiliates, their directors, officers and employees will be liable or have any responsibility of any kind for any loss or damage that may be incurred as a result of using the information contained in this report. 8 Economic Research Treasury Division