Saudi Arabia Unveils Unusually Conservative 2012 Budget

RIYADH, Saudi Arabia – 2012’s budget was outlined today, indicating an increased concentration on education and healthcare, though the kingdom plans on distancing itself from public entitlements in light of public economic backlash around the world, as well as lower projected revenue.

Though Saudi Arabia is usually conservative in its fiscal projections, specifically surrounding oil revenue (which ended up twice as high than projected in 2011), 2012’s budget predictions are based on more realistic figures. Global oil prices are expected to fall short of last year, lowering Saudi Arabia’s SAR 1,100 billion (2011) to roughly SAR702 billion for the coming year. The resulting surplus will be approximately SAR12 billion for 2012, down from 2011’s SAR306 billion. Jarmo Kotilaine, chief economist of NCB Capital in Jeddah, had this to say regarding the lowered predicted surplus:

“Clearly it’s a very strong fiscal outcome for last year, after a massive surplus at just over 10% of [gross domestic product]. Not many countries can boast that in this day and age. It’s an enviable starting point [for 2012].”

Included in the 2012 budget: a 13% increase in spending for education and 26% increase in spending for health care, including the construction of new hospitals. Last year’s government-funded programs for housing, jobs and other social programs will be quietly phased out.

According to Paul Gamble, the head of research at Jadwa Investments in Riyadh, the tightened budget surrounding the more conservative predictions is a good thing. He says that last year’s figures made it “easier to overspend” over the year, meaning primarily that the projected drop doesn’t necessarily signal economic troubles, but rather wiser spending on the part of the Saudi kingdom. To put things in better context, last year 40% of the budget was spent on job bonuses, wage increases, and a self-indulgent campaign.

So, in summary:

– Higher spending on health care and education.

– Significant projected reduction in 2012 surplus.

– Economists are saying that revenue projection is realistic.

No reason to get bent out of shape if you’re a global economy watchdog. But hey, news is news.

Is Saudi Arabia’s belt-tightening a wise economic move, or a subtle sign of further economic fallout around the world?