KSA: Reining in the budget

Saudi Arabia is overspending and too much of its annual budget goes into servicing debt and financing the bloated public sector. Crown Prince Abdullah says he has had enough.

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By  David Ingham Published  March 11, 2002

Crown Prince blasts government waste|~||~||~|Crown Prince Abdullah has had enough. Last month, in what was an almost unprecedented move, KSA’s Crown Prince publicly blasted inefficient government officials and said it was time to do something about waste and overspending, particularly in the public sector.

In a circular published by Al-Watan newspaper, Crown Prince Abdullah said that the overspending is hurting the country and that under-performing officials might even be replaced. “We have noticed that many government bodies are making requests higher than their allocated budget allows, without any consideration for the suffocating crisis that our country is dealing with,” he said. “Experience has taught us that overspending is a bottomless abyss.”

The Crown Prince added that officials should remember their duty to the public. “The government is capable of replacing untrustworthy and incapable officials with those who are capable and trustworthy,” he said.

Crown Prince Abdullah’s comments come against a backdrop of continued overspending and rising national debt. According to reports, 2001 public spending exceeded the budget by SR 40 billion and lower oil prices are also expected to cause another enormous deficit this year.

A report in the February edition of the influential Middle East Monitor (MEM) asks how a budget deficit was generated in 2001 when total revenues were SR15 billion higher than the budgeted top line of SR230 billion. “[Saudi Arabia] puts this down to a particularly devastating overspend of some 18% above that budgeted at the end of 2000, yet the lack of transparency in the budget statement — entirely in keeping with Saudi traditions — leaves analysts speculating about the identity of the recipient of that increased expenditure,” states the MEM report.

One insider contacted by Arabian Business says that the overspend is due to expenses that were passed on from previous years, although he does not elaborate. Whatever the reason, Saudi Arabia is this year predicting a deficit of SR45 billion based on an oil price of US$17 per barrel. This deficit will be created despite spending cuts of 20% over 2001.
||**||Funding the debt|~||~||~|
Given those statistics, MEM believes that Saudi Arabia will not achieve its previously stated goal of eliminating its fiscal debt by 2004. Total debt (including foreign and domestic debt) now exceeds gross domestic product despite two years of exceptional oil receipts, and the government is forced to spend 15% of its annual budget servicing that debt.

This year’s debt will be covered by domestic bank lending and through a purchase of government debt by the Saudi pension system. However, whilst Saudi Arabia might be capable of servicing its debt, the downside is that the Kingdom’s “prodigious oil wealth” is not being be used to far more positive effect.

Rather than being invested in infrastructure development, education and economic diversification programmes, a greater and greater proportion of the Kingdom’s spending is eaten up by public sector wage bills. That leaves ‘productive’ capital spending accounting for less than one quarter of total government spending, according to MEM.

That explains why the Crown Prince issued his warning to the government sector to rein itself in. As a result, “In the future, I think you will see more spending control, as indicated by the Crown Prince,” says a government source.

At the same time as controlling spending, the government also wants to boost the revenues coming in and diversify the economy to reduce the Kingdom’s exposure to oil prices. Key to that strategy is a drive to attract more foreign investment, a process that began last year with the passing of laws that made it easier for foreigners to open businesses in the Kingdom. Plans to attract foreign investors to ‘virgin’ agricultural regions in the South West of the country were announced at a high profile investment confernce in January.

Another development was a government speech to private sector chiefs, telling them not to expect government bailouts in the event of loans going bad. The speech was made by Dr. Ibrahim Al Assaf, Minister of Finance and National Economy at February’s fifth annual meeting of Middle Eastern and North African chief executives in Riyadh.

It remains too early to tell whether all of the government’s moves will ultimately succeed. “So far, I am ‘cautiously encouraged’ by the progress,” says one observer close to the government. “Effective implementation is needed, and this will take time.” Given Saudi Arabia’s growing fiscal problems, however, time is of the essence.||**||

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