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S. Arabia to continue 'massive' spending

By AFP - Dec 17,2014 - Last updated at Dec 17,2014

RIYADH — Saudi Arabia will continue massive public spending despite a 50 per cent drop in the price of oil, which provides the bulk of its revenue, the finance minister said Wednesday.

Ibrahim Bin Abdul Aziz Al Assaf commented after completing the 2015 budget, which will be presented to Cabinet "in the near future", the official Saudi Press Agency said.

Financial analysts expect the budget to be approved as early as Monday.

The kingdom is the largest economy in the Arab world, and the biggest crude producer in the Organisation of Petroleum Exporting Countries (OPEC)

Assaf said the budget comes during "challenging" global economic conditions but surpluses and reserves built over many years have given it "depth and a line of defence that come in handy in times of need".

He added that this policy will continue, enabling the government "to implement massive social projects" in health, education, social services and development as well as state security.

This spending, combined with private sector activity, is expected to bring positive economic growth, he continued, without giving a figure.

Riyadh-based Jadwa Investment said in a December 7 report that the government should be in a comfortable position to adjust to lower oil prices and avoid drastic spending cuts.

It highlighted "the strong sovereign balance sheet, with foreign reserves of more than 95 per cent of the gross domestic product (GDP) and a public debt of less than two per cent of national output".

Jadwa projected a fiscal deficit of 2.7 per cent in 2015.

It said it expected global growth to recover next year, helping to pull up crude prices to around $84 a barrel.

"We think the government will maintain elevated spending," Jadwa said, forecasting real GDP growth of 3.4 per cent in 2015.

British-based analysts at Capital Economics said a budget deficit "should be easily financed by issuing debt or drawing down savings. Overall, then, growth is unlikely to collapse as a result of lower oil prices".

Saudi Arabia had a nominal GDP of $748 billion (598 million euros) last year, and reported a budget surplus of around $55 billion.

The ruler of neighbouring Kuwait, Sheikh Sabah Al Ahmad Al Sabah, warned in October that falling oil prices were damaging his nation's economy.

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