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Fitch Ratings positive on Saudi Arabia's intended spending boost in 2013.

Ratings agency Fitch have registered their approval of Saudi Arabia's budget uplift for 2013 in their latest review, saying that based on a conservative

oil price it will help generate "healthy growth" during the course of the fiscal year, in what is the Middle East's largest economy, as well as reinforce

the kingdoms financial surplus reserves.

Although Fitch Ratings analysts also added a caveat to their January report, predicting that overall growth in the economy will slow due to a decline

in oil production, a factor which had already come into effect in more recent months.

Saudi Arabia's 2013 budget originally made public in very late December last year, projects record expenditure of US$ 219 billion, which actually

equates to a colossal 34 per cent of GDP and also represents a rise of marginally below 20 per cent on the Arabian Gulf state's 2012 budget. Within

that budget, spending continues to concentrate on education and healthcare, which account for 37 per cent of the overall bottom line.

The Saudi government predicts a substantial18 per cent leap in revenues, which is assumed to be based on increasing progress evidenced by existing

earnings generators, as no new initiatives have been announced, especially as there appears little room for higher oil revenues, other than through

greater export of refined as opposed to crude end product. Fitch observed that despite an absence of obvious new contribution streams, the revenue

projection was far less inhibited than usual.

Yet in real terms, the outcome is always much better that it would appear in any given Saudi budget, according to Fitch. "However, actual revenues

generally substantially exceed budget revenues (by an average of 82 per cent in the past five years) and should do so again in 2013," the firm


While the surplus budgeted for 2013 is portrayed at US$ 2.4 billion, Fitch's expectation would be of a considerably larger surplus come the year-end. A

view based on the fact that the oil price employed for calculation purposes is approximately US$ 60 per barrel based on production of 9.7 million barrels

per day, whereas Fitch's forecast sees oil maintaining an average price of US$100 per barrel over the twelve months. However, offsetting that cushion will

be the fact that spending will inevitably outstrip the budgeted level; Saudi Arabia has exceeded its expenditure budget by an average of 24 per cent

without fail during the past decade, the rating agency said.

While the Gulf state's fiscal position is exceptionally robust, its majority dependency on oil revenues represents one area of risk. Fitch believes that the

breakeven oil price will increase to US$74 per barrel in 2013 (assuming no change to budget underpinning production of 9.7 million barrels a day) a rise

from US$ 68 in 2012 and just above US$ 40 in 2008.

Nevertheless, the final Fitch Ratings conclusion was supportive of a confident outlook.

"Government spending has been the main impetus behind the strength of the private sector (construction was the fastest growing sector in 2012) and

with policy remaining expansionary in 2013, further healthy private sector growth is anticipated,Ao analysts opined.

"Bank lending and strong consumer and corporate confidence should also support the private sector. Overall growth will slow, however, due to a decline

in oil production that was already evident in recent months," the firm added in a final cautionary note to investors.

Copyright Andy McTiernan. All rights reserved.

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Publication:Andy McTiernan Property & Economy Bulletin
Geographic Code:7SAUD
Date:Jan 13, 2013
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