Saudi Arabia’s budget revenues are expected to reach a record SR1.17 trillion ($312 billion) this year, though elevated spending will keep the fiscal surplus below 5 per cent of GDP, a report said.

Saudi government spending particularly on wages and salaries, goods and services and public projects is likely to remain high this year, added the latest Macroeconomic update released by Jadwa Investment, a Saudi closed joint stock company.

Saudi Arabia’s oil revenues are the source of around 90 percent of budget revenues. Since Brent crude has averaged $110 per barrel so far in 2014, Jadwa has revised its forecast for Brent upwards to reflect the current high price levels and now expect it to average $109 per barrel this year.

Saudi Arabia is also becoming a major aid and financial assistance provider in the Middle East region which will put further pressure on its budgetary position, the Jadwa report said.

Dr Fahd Alturki Fahad, head of Research at Jadwa, said the remainder of the additional oil revenue will be used to build up savings in the form of foreign assets at the Saudi Arabian Monetary Agency (Sama).

“Sama foreign assets were up by $13 billion in the first six months of the year and we expect an increase of more than $50 billion over the whole of 2014,” he added.

Very high government spending will remain as the main stimulus to the economy with high oil revenues supporting business and investor confidence for the fourth consecutive year. Economic data for 2014 (covering the first half) has been solid, indicating that overall economic growth will still be driven by the non-oil sector this year.

“In particular, we think that construction, transportation, retail and manufacturing will be the main drivers of growth in the non-oil economy,” said Dr Alturki.

“Consumer spending, bank credit to private sector, project market and other business survey data all point to robust performance in the non-oil real GDP for the first half of this year. Our impression is that progress in awarding contracts and project implementation has been stepped up as the government pushes contractors to finish projects that had been delayed.

“While this is generally in line with our expectations, we have, nevertheless, slightly increased our forecasts for the non-oil sector to 5.1 percent this year, to reflect the increases in government expenditure,” he added.

Higher oil revenues will cause the Kingdom’s external position to remain very strong.

“We are now projecting a current account surplus of $133 billion, which is 16.9 percent of GDP,” said Dr Alturki. – TradeArabia News Service