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Saudi Arabia plans record budget spend

Desert oil pumps1The world’s largest oil exporter, Saudi Arabia, has raised its planned budget expenditure to 820 billion Saudi riyals (€166 billion), an increase of 130 billion riyals on the budgeted expenditure in 2012.

However, GDP growth is forecast to fall from 6.8% in 2012 to 3.1% this year, according to Jadwa Investment, a Saudi-based asset manager that has analysed the budget.

A quarter of the budget expenditure will go on education, 16% to health and social affairs, and 11% to water, agriculture and related infrastructure. Spending on transport and telecoms and municipality services will rise sharply.

Though undisclosed in the budget announcement, defence and security spending are likely to account for the largest chunk of the budget expenditure, according to Jadwa.

The budget is of interest to fund managers targeting the Middle East and North Africa because Saudi Arabia is one of the largest and most buoyant economies in the region. Private equity opportunities in the country are said to be attractive.

However, foreign investors can still only access the Saudi stock market indirectly, though there are expectations that the country will permit large foreign institutional investors to invest directly in stocks.

The decline in GDP growth will come from lower oil production and a large base-effect for the non-oil sector, says Jadwa.

“While the economic picture will improve, 2013 will be the fifth consecutive year that economic growth will be heavily dependent on government spending,” says the report from Jadwa. “This spending will be affordable, but the economic growth such vast spending will generate will not be spectacular.”

©2013 funds europe