DUBAI: Plunging oil prices could mean the first budget cuts for major exporter Saudi Arabia since 2002 but they are not expected to be large enough to stop growth in the Arab world’s biggest economy.

The government gets about 90 per cent of its revenue from oil exports and is believed to need an average oil price above $90 to balance its budget this year.

But Brent crude fell to $67 a barrel this week from $115 in June and if current prices are sustained, the budget plan for next year, expected late this month, will produce a deficit for the first time since 2009.

“There is no way for Saudi authorities to ann­ou­nce a bigger budget in 2015 than what they announced for 2014,” said John Sfa­kianakis, a former adviser to the Saudi finance ministry who is now re­­gional director of asset manager Ashmore in Riyadh.

“Unavoidably they will have to scale down the budget. (But) I do not expect the budget to be hugely lower.”

As recently as last month, the International Monetary Fund (IMF) predicted Saudi Arabia would enjoy a fiscal surplus of 1.6pc of gross domestic product (GDP) in 2015; now, private economists are talking of a deficit of over 1pc.

But businessmen and economists do not expect big cuts in state spending because the government has built huge fiscal reserves to cover any deficit and its ultra-low debt levels would allow it to borrow easily if needed.

This means the economy, which grew an annual 3.8pc in the second quarter, should continue to expand and major infrastructure projects, such as the $22.5 billion plan to build a metro rail system in Riyadh by 2019, should not be at risk.

Some analysts believe Saudi Arabia is content to see oil prices fall as a way to squeeze out competing shale oil producers in the United States, confident it has enough reserves to ride out a period of cheap oil.

BUDGET PLAN: Even before oil started falling in June, Saudi Arabia was curbing spending growth after several years of spectacular increases following the global financial crisis and the 2011 Arab Spring uprisings.

The current year’s budget plan envisages expenditure of 855bn riyals ($227.8bn), a mere 4.3pc rise from the 2013 plan and the slowest increase in a decade.

Top Saudi officials have been coy about their 2015 plans.

“The global oil situation usually in one way or another affects countries’ revenues and debts, but the kingdom has always been keen on building its budgets on estimates that take all possibilities into consideration,” Finance Minister Ibrahim Alassaf told a local newspaper last month.

The government usually ends up spending substantially more than its budget plan, overspending by an annual average of 25pc in 2004-13. So the 2015 plan could quickly change if oil prices rebound.

It seems clear, however, that the government will not be under pressure to reduce spending sharply.

Published in Dawn December 3rd , 2014