Saudi Arabia will reap a record budget surplus of 191 billion riyals ($51 billion) from high oil prices this year and enjoy strong growth and revenues for the rest of the decade, a leading Saudi bank predicted on Monday. Samba Financial Group said the economy of the world's biggest oil exporter will grow 6.5 percent in real terms in 2005 and maintain annual growth of 5-7 percent until 2010.
"This year will be the best in the kingdom's economic history," Samba said in a half-year report for clients. "...Oil revenues, the government budget surplus and the current account surplus will all register all-time highs because of exceptional oil prices and high oil production."
Samba based its 2005 forecast on an average price of $45 a barrel for Saudi crude and production levels of 9.6 million barrels per day.
It said the high world oil prices, which reached $60 a barrel for US crude earlier this month, were the result of demand growth and tight supplies which are likely to continue benefiting Saudi Arabia for the foreseeable future.
"This upswing is just beginning and will be sustainable for many years," Samba said of the economic boom.
The bank predicted government revenues of 527 billion riyals ($141 billion) this year.
Even if the government overshoots its budgeted expenditure by 20 percent, it will be left with 191 billion riyals surplus.
Real GDP growth of 6.5 percent will come from 7.1 percent growth in the oil sector, 7.4 in the non-oil private sector and 3.8 percent in the government sector, the bank said.
Samba's report, the most bullish outlook yet on the Saudi economy, said the full force of the oil price rise had yet to hit the kingdom.
While business investment is growing strongly, the state sector has not yet started lavish spending and much of the oil revenues is being accumulated as foreign reserves.
"The government is largely re-loading the fiscal cannon," Samba said, adding the impact of high oil revenues will just begin to be felt next year and will build from then.
The last time Saudi Arabia enjoyed a comparable surge in oil prices in the 1970s, its economy was dependent on state spending and the windfall was used to build up the infrastructure of the largely pre-industrial desert state.
"This boom is different. It is private sector-led, and government supported," Samba said.
The bank predicted government domestic debt will fall to 604 billion riyals this year, bringing it down to 51 percent of GDP from a high of 119 percent just six years ago.
But it warned that any further rapid cut in the debt might actually be counter-productive if it injected cash too quickly into the economy and fuelled asset price inflation on the stock and real estate markets.
Samba said Saudi Arabia raised its central bank foreign assets by $22 billion in the first five months of the year and predicted that the increase will grow to $50 billion - roughly the size of the budget surplus - by the end of the year.
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