Saudi Arabia spending on track, shielded from euro zone crisis

Saudi Arabia spending on track, shielded from euro zone crisis

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Sees limited impact from euro zone; Growth, spending seen intact; Inflation outlook stable .

May 22, 2012 3:27 by Reuters

Saudi Arabia will feel only a limited impact from the euro zone debt crisis and will not cut spending even if there is a fall in oil prices, the main source of revenue for the world’s leading producer, Saudi officials said on Tuesday.

The Saudi government boosted expenditures to a record 804 billion riyals ($214 billion) in 2011, nearly 40 percent over its initial plan, to ease social tensions during the unrest of the Arab Spring Finance Minister Ibrahim Alassaf said.

Revenues and spending in Saudi Arabia were higher than budgeted in the first five months of 2012, Alassaf said, speaking at the Euromoney conference in the capital Riyadh.

“We are in a very comfortable fiscal position,” he said, adding that he expected inflation to ease after hitting highs earlier this year.

Oil prices have been edging closer to January lows; on market concerns over Greece’s impact on Europe’s economy and whether China can sustain growth. Saudi government spending has traditionally fluctuated, in part, on oil price movements since it affects both private and public revenues.

Saudi Arabia’s annual inflation rate edged slightly lower to 5.3 percent in April from a 14-month high of 5.4 percent in February. The rise was mainly due to upward pressure from higher food and housing costs but inflation is far below a record high of 11.1 percent hit during an oil boom in July 2008.

The data underlined how strong economic growth in the country, on the back of high oil prices and heavy government spending, was creating conditions for inflation.

Muhammad al-Jasser, formerly governor of the kingdom’s central bank, said later at the same event that any impact to Europe’s debt crisis on Saudi Arabia would be limited, thanks to Europe’s efficient use of oil and Saudi Arabia’s “negligible exposure” to European banks.

“If Europe has a serious recession it will affect the whole world, but it will affect us less,” Jasser said. “Our ability to maintain a good level of spending will be okay.

Jasser added he was hoping to see economic growth of around 6 percent in 2012, adding that the inflation outlook was stable in the near- to medium-term.

(Writing by Reed Stevenson; editing by Ron Askew)