RIYADH, Oct 24: The oil producing Gulf Arab states are reaping the benefits of higher oil revenues, with highest ever oil revenues in decades. Saudi Arabian economy, the largest and the dominant in the region, is now projected to grow by 6.8 per cent this year and 5.1 per cent in 2006, driven by surging oil revenues and increased government and private sector spending, Samba Financial Group said in its quarterly report.
Revising up a July forecast of 6.5 per cent real GDP growth this year, Samba said record oil prices in late August and a growth in state expenditure in the last three months had contributed to the higher estimates.
Kuwait is also heading for highest ever oil revenues for the current financial year.
As per the Samba report the Saudi revenues are expected to surge to SR551bn ($150bn), resulting in a record budget surplus of 208 billion riyals ($55.5) billion. The government spending was projected to reach a “moderately stimulative” SR343 billion, Samba predicted.
Samba’s forecast was based on a $51 per barrel price for Saudi oil – double the $25 a barrel, which the bank said the 2005 budget had assumed – and production averaging 9.5 million barrels per day. The currently projected price level is 45 per cent more than 2004’s crude price of $35.17 a barrel. Saudi Arabia’s oil revenues last year were $106bn.
“Real GDP for 2005 is set to climb 6.8 per cent, the highest growth level achieved in the country for the past two decades,” said the report by Samba economist John Sfakianakis.
“Nominal GDP will grow 29.8 per cent, a phenomenal rise by any economic standards, and driven by the rise in oil prices.” The bank also revised up its current account surplus forecast to $101 billion from $96 billion.
Samba predicted a fall in debt to 595 billion riyals or 49 per cent of GDP- down from 119 per cent just five years ago. Economists say this underlines the strength of the Saudi economy at this moment. Samba also forecast that the Saudi central bank foreign assets will rise to $141 billion by the end of the year.
Samba forecast Saudi Arabia’s non-oil private sector, which accounts for 43 per cent of GDP, will grow 7.9 per cent this year and pick up even greater pace in 2006. The oil sector will grow 7.2 per cent and government sector 3.9 per cent, it said.
State oil firm Saudi Aramco plans to invest $50 billion in a series of programmes to increase production capacity and petrochemical giant SABIC plans to invest $20 billion over the next three years and $70m billion over the next 15 years. The government has also revived spending on infrastructure, health and education projects, many of which were virtually frozen during years of budget deficits Saudi Arabia, Kuwait, the United Arab Emirates and three other oil producing Gulf states are projected to generate a record $305bn of oil revenue this year, a third more than in 2004, on higher international oil prices, according to UK bank Standard Chartered.
Similarly the OPEC member Kuwait is also on track to boast record high revenues after the finance ministry reported a sharp rise in earnings in the first five months of the current fiscal year.
Figures posted on the ministry’s website show that by the end of August, the fifth month of the 2005-2006 fiscal year, Kuwait earned 5.36bn dinars ($18.4bn). The figure is 17 per cent higher than budget estimates for the whole year of $15.7 billion.
The state budget for the current fiscal year — April 2005 to March 2006 — estimates spending at $24.7 billion, leaving a projected deficit of $9 billion. Revenues have, however, increased sharply on the back of strong oil prices. Oil income was calculated in the budget at a conservative price of $21 a barrel.
Official figures show that actual oil income in the first five months reached $17.3 billion while non-oil revenues were $1.1 billion. Spending in the same period was $6.1 billion or just under a quarter of projected spending for the whole year.
If oil prices and output remain at the current level for the rest of the financial year, Kuwait could post record revenues in excess of $45 billion. The budget surplus in that case would top $20 billion.
National Bank of Kuwait (NBK) said in an economic report last month that Kuwait’s revenues for the year could range between $47 billion and $50 billion, depending on the price of crude. Oil income for the year is forecast to range between $44.8 billion and $47.4 billion, NBK said while the non-oil revenues would account for the rest. This could leave a net budget surplus of between $23 billion and $26 billion, the bank said.
