Saudi Arabia’s 2014 Budget Emphasizes Long-Term Development

Saudi Arabia released its 2014 national budget, another expansionary plan that highlights the government’s intention to bolster long-term development by focusing on investment programs, particularly in education, infrastructure, health, social services, security services, municipal, water and water treatment services, as well as roads and highways. The budget also aims at strengthening financial institutions to enhance sustainable economic growth and employment opportunities across a variety of sectors.  Further, particular attention is given to science, technology, and e-government projects.

With total revenues projected to reach $228 billion (SR855 billion), Saudi Arabia has set a state budget for 2014 with spending valued at $228 billion (SR855 billion).  Budget revenues are projected at $301.6 billion (SR1.13 trillion) for 2013, leading to a surplus of $54 billion (SR206 billion), the third consecutive year that the Kingdom has budgeted a surplus.  

The 2014 national plan is an extension of previous developmental plans.  Education and healthcare remain the priority of the Kingdom’s budget, accounting for 37 percent of total spending.  Education continues to receive the largest share of the budget at 25 percent of total spending, considered among the highest in the world, while health and social affairs received 12.6 percent of the expenditure.  Municipal services and health and social affairs received the largest increase in their allocation at 9 and 8 percent, respectively.

Education and Training

  • Total expenditure: $56 billion (SR210 billion)

Saudi Arabia allocated $56 billion (SR210 billion) to education and training,  3 percent higher than the 2013 allocation, and the highest increase since 2007.  The funds will be used to finance the construction of 465 new schools and 1,544 existing school projects, as well as the refurbishment of 1,500 schools.  In addition, 8 new colleges, facilities, and campuses at newly-opened universities will be built.  An estimated $1.39 billion (SR5.2 billion) has been allocated to build new vocational and technical projects while $5.9 billion (SR22 billion) was allocated for over 185,000 Saudi students studying abroad and their families, up from $5.8 billion (SR21.6 billion) earmarked in 2013.  Additional appropriations for existing projects amount to $133.3 million (SR500 million) 

Health and Social Affairs

  • Total expenditure: $28.8 billion (SR108 billion)

The health and social affairs expenditure accounts for 12.6 percent of the total budget, the second highest expenditure this year.  Allocations for health and social affairs spending grew by 8 percent year-on-year to reach $28.8 billion (SR108 billion) in the 2014 budget.  As a result, 34 new hospitals and healthcare centers will be built, in addition to continuing work at 132 hospitals and five medical cities currently under construction.  The budget also includes appropriations to build 20 sports clubs, 16 social centers, and labor offices.  Additionally, the budget provides funds to support social welfare, special needs citizens, and poverty programs.

Water, Agriculture, and Related Infrastructure

  • Total expenditure: $16.3 billion (SR61 billion)

Water, agriculture, and infrastructure projects have been allocated $16.3 billion (SR61 billion) in 2014, marking an 5.7 percent increase over 2013.  An estimated $8.8 billion (SR33 billion) will be spent on new projects to increase water resources by building dams and desalination plants, using deep aquifers wells, and expanding and improving water and water treatment networks.  Funds have also been set aside for new silos projects and new projects in industrial cities.

Infrastructure and Transportation

  • Total expenditure: $17.3 billion (SR65 billion)

The infrastructure and transportation sectors received the third largest budget increase in 2013.  The sectors have been allocated $17.8 billion (SR66.6 billion), representing a growth of 2.5 percent over 2013.  An estimated $10.7 billion (SR40.2 billion) will be spent on building new roads, railways, and sea ports as well as infrastructure projects at Jubail, Yanbu, and Ras Al-Khair.  Saudi Arabia is also upgrading and expanding regional and international airports, and completing work on existing road projects.

Municipality Services

  • Total expenditure: $10.4 billion (SR39 billion)

The budget designates $10.4 billion (SR39 billion) to municipal services, a 9 percent increase over 2012.  The spending will go to new intercity roads, bridges, rain drainage and control systems, flood fighting, express road exits, asphalting, and environment-related projects.  According to H.E. Dr. Ibrahim Al-Assaf, Minister of Finance, the municipal sector experienced the increase due to the numerous direct services provided by many municipalities in the Kingdom.

Specialized Credit Development Institutions and Government Financing Programs

  • Total expenditure: $22.75 billion (SR85.3 billion)

The Kingdom’s specialized credit institutions will continue to provide loads to support job creation, develop the real estate market, and increase growth prospects.  Under the 2014 budget, the Real Estate Development Fund, Saudi Industrial Development Fun, Saudi Credit and Saving Bank, Agriculture Development Fund, Public Investment Fund, and Government Lending Program will disburse approximately $22.75 billion (SR85.3 billion). 

According to Jadwa Investment, high government spending will continue to be the engine of the non-oil economy, supported by greater bank lending and healthy domestic consumption.  This will be the sixth consecutive year that economic growth will be heavily dependent on government spending.  Non-oil growth is expected to maintain a solid performance with greater execution of government investment projects, especially in the infrastructure and transportation sectors.  However, economic growth is forecast to fall to 3.8 percent from 5.8 percent in 2013, due to lower oil production and large base-effect for the non-oil sector.  Inflation is expected to fall to an average of 3.35 percent with rent and food as main contributors.

Economic Review of 2013

Preliminary macroeconomic data indicate that 2013 was a healthy year for the Saudi economy, with strong economic performance.  Real GDP rose to 3.8 percent year-on-year.  Nominal GDP reached $736 billion (SR2.76 trillion) in current prices, a 1.2 percent increase compared to 2012.  The total outstanding government debt was projected to fall to $20 billion (SR75.1 billion), equivalent to 2.7 percent of GDP.  Additionally, inflation in Saudi Arabia was estimated at an average of 3.35 percent, compared to 4.5 percent in 2012. 

The Kingdom slowed oil production in 2013 amid lower demand and increased supply stemming from shale and natural gas production.  As a result, the oil sector declined by 0.61 percent while the government sector grew by 3.7 percent.  Continued high government spending and over 2,330 projects signed with the private sector, valued at $41.9 billion (SR157 billion), bolstered business and consumer confidence as well as banks’ comfort in the lending environment, despite the regional turbulences and concerns about the global economy that marked 2012.  

All non-oil GDP components witnessed a positive growth in 2013 with non-oil industrial private sector increasing by 4.72 percent.  The private sector contributed 59 percent to the GDP.  Sectors with the highest growth rates included construction (8.1 percent), transportation, storage, and communications (7.2 percent), wholesale, retail, restaurants, and hotels (6.16 percent), and finance, insurance, and real estate (4.9 percent).

While the 2013 budget originally envisaged revenues of $330.5 billion (SR1.2 trillion), they actually amounted to $301.6 billion (SR1.13 trillion).  The expenditure, originally estimated at $218.7 billion (SR820 billion), stood at $246.7 billion (SR925 billion).  This increase is 12.8 percent above the budgeted level but lower than the average 24 percent of overspending recorded over the last ten years.  This resulted in a budget surplus of $54.9 billion (SR206 billion) in 2013.  Additional expenses in 2013 included the payment of the projects in the Two Holy Mosques, the increase in the capital and resources of the Real Estate Development Fund and the Saudi Industrial Development Fund, increase in expenditures on the unemployment benefit program.

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