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Saudi Arabia's burgeoning debt burden

According to <i>Middle East Monitor</i>, Saudi Arabia will this year spend 15% of its total budget on servicing debt and less than 25% on capital investments within the country.

Saudi Arabia’s previously stated goal of eliminating its fiscal debt by 2004 will not be achieved, according to a report in the influential Middle East Monitor (MEM). 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.

Enigmatically referring to the deepening debt problem as “an economic predicament,” MEM’s February edition ponders how a budget deficit of SR25 billion 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.

This year Saudi Arabia is predicting an even greater 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. Worse still, suggests MEM, a greater and greater proportion of the Kingdom’s spending is eaten up by public sector wage bills; leaving productive capital spending accounting for less than one-quarter of total government spending.

The private sector is being relied upon to keep capital spending levels on an upward curve. Officials point to last year’s economic reforms that encourage direct foreign investment as one method to stimulate this spending.

At the same time, nationalisation of the private workforce is also being encouraged in order to contain the Kingdom’s public sector wage bill and create better career opportunities for the exploding population of young adults.

While MEM concludes that Saudi Arabia is easily capable of servicing its debt, it postulates that with better management, the Kingdom’s “prodigious oil wealth” could be used to far more positive effect.

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