A projected deficit in Saudi Arabia's 2009 budget is expected to turn into an actual surplus although the world's oil superpower will likely again overshoot assumed expenditure, a leading Saudi bank said yesterday.

The surplus, albeit small, could be achieved because actual revenues are forecast to exceed budgeted earnings since the Gulf Kingdom estimated a price of $36 for its crude while prices are expected to average $52 a barrel, said the National Commercial Bank (NCB), Saudi Arabia's largest bank.

In a study on the Saudi budget sent to Emirates Business, NCB described the budget that was announced on Monday as expansionary budget intended to weather any economic downturn because of the global financial crisis.

"The 2009 budget sees revenues and expenditures at SR410 billion (Dh401bn) and SR475bn, respectively. This would result in a budgeted deficit of SR65bn, the first since 2004. But since the 2009 budget is likely to be a combination of understated spending and underestimated revenues, we believe Saudi will still manage to record a surplus in 2009, even if it will be small compared to previous gains in recent years," the study said.

"With our forecast of $52 a barrel for Saudi crude prices and factoring in a traditional degree of overspending, we project an overall budget surplus of about SR25bn, or 2.1 per cent of estimated GDP in 2009."

Saudi, which controls a quarter of the global oil deposits, surprised experts on Monday when it released the country's biggest budget despite a collapse of more than $100 in oil prices in the previous four months. The gloomy mood of the price plunge was offset by the Kingdom's massive overseas assets of more than SR1.7trn and its biggest ever fiscal surplus of SR590bn achieved in the 2008 budget.

"By approving high spending, the government is sending a positive signal to the private sector and the market," Saeed Al Shaikh, Chief economist at NCB said. "As part of its economic growth and development plans, we believe the government is committed to structural reforms that promote privatisation and foster a business-friendly environment to attract investment and enable technology transfer."

According to NCB, budgeted revenues are way below the 2008 budget, in line with expectations of lower crude oil prices in 2009. Revenue for 2009 is around SR40bn, or nine per cent lower than the 2008 budget. Although an official breakdown is not available, around 85 per cent of this is expected to come from oil, the study said.

"As in previous years, the 2009 budget is based on a conservative oil price assumption. With average oil production likely about 8.5 million bpd, an average price of about $36 a barrel for Saudi oil is probably the implicit price assumed in the government's budget," it said.

"This, however, is $9 lower than the number that we believe was used for the 2008 budget, which is probably a reflection of the government's concern over the slump in crude prices at the time of budget preparation."

The report said weak oil prices and a decline of around 700,000bpd in Saudi Arabia's crude output from 9.2m bpd to 58.5m bpd would have an adverse impact on revenues and growth in the domestic economy.

"In line with Opec production cuts, we expect Saudi oil production to fall to an average 8.5m bpd in 2009. With a $52 price forecast for Saudi crude oil, and accounting 85 per cent for oil revenues, we estimate total revenues will reach SR546bn in 2009. Although this is around 50 per cent lower than the actual outturn in 2008, it is still 21 per cent higher than the SR410bn estimated in the budget this year," it said.

The study said it expected the government to overshoot budgeted spending in 2009 though cautiously.

It said actual expenditures would most likely exceed budgeted expenditures by about 10 per cent, which is below the 20 per cent historical average for the last eight years. Actual expenditure were already 24 per cent higher than budgeted in 2008, climbing to a record SR510bn.

"Given the currently tight external funding/credit environment, and the government's reiteration of its commitment over physical and social capital expenditure plans, we believe budgetary overruns are likely to remain a key feature in this cycle to weather any economic slowdown ahead," NCB said.

"But unlike 2008, the next year will prove to be a challenging time for the Kingdom. The broader global economic environment for Saudi has deteriorated, given the slump in oil prices, tight credit and costlier borrowing from external markets, and other factors."

But the study saw what it said where a number of key points in the 2009 budget showing that Saudi will be able to sustain economic growth ahead: It listed the following points:

-Strong fiscal and external positions will allow the government to maintain an expansionary fiscal policy stance to whether the crisis.

-Increasing capital expenditure could boost non-oil growth in the short-run. It also sends a positive signal to the private sector, which can improve overall confidence.

-Restraining growth in current expenditure could imply higher savings.