“The main reason for this slowdown is to be found in the oil sector,” the Riyadh-based bank said in an e-mailed report late yesterday. “The fundamentals are likely to soften in 2013 as additional supply from Iraq and North America has more impact.”
The government, which derives about 90 percent of revenue from oil sales, benefited from higher production last year as international sanctions cut Iranian output. The economy grew an estimated 6.8 percent in 2012 as King Abdullah allocated oil wealth for projects to expand airports, build roads and real estate.
The kingdom, which pumped 9.95 million barrels a day on average in 2012, is likely to produce 4.5 percent less this year, Samba said. Saudi Arabia produced 9.57 million barrels a day in December, according to data compiled by Bloomberg News.
King Abdullah pledged more than $500 billion on social welfare and to build projects to ensure that the country remains unscathed by the kind of political unrest that swept through other Arab countries in the past two years. He is using oil money to fight high unemployment -- about a quarter of Saudis between 20 and 30 don’t have jobs -- and to build schools and hospitals.
“Government spending has seen phenomenal growth in recent years, increasing by an annual average of 13 percent in 2008- 12,” Samba said. “Yet the revenue outlook is beginning to swing against the government: our oil price and production assumptions suggest that overall revenue will decline by an annual average of some 7 percent in 2013-15.”
Saudi Arabia raised its 2013 expenditure target by almost a fifth to a record 820 billion riyals ($219 billion), the Finance Ministry said in a statement on its website no Dec. 29. The kingdom posted revenue of 1.24 trillion riyals in 2012 as the price of Brent crude held above $100 a barrel for a second year. Expenditure came in at 853 billion riyals.
Government spending on wages, salaries and unemployment benefits is “unlikely to be cut,” Samba said. “The government will reign in capital spending.” This will impact growth in the non-oil sector, which Samba forecasts easing to an average of 4.3 percent in 2013 to 2015.
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