KSA budget deficit may shrink
A recent rally in the price of oil means that Saudi Arabia’s 2002 budget deficit may not be as huge as the SR45 billion that was earlier predicted
Saudi Arabia may not be heading for a horrendous budget deficit this year after all.
In January, the government predicted that its 2002 budget deficit would come in at somewhere around the SR45 billion mark. That prediction was based on an oil price of $16.5 - $17.5 per barrel of Brent Crude.
However, following a recent rise in oil prices, the predicted deficit of SR45 billion may now turn out to be as low as SR 10 billion. That would depend on the oil price staying at around $22 per barrel, which seems more likely given a much improved outlook for the global economy.
“What they estimated for 2002 oil revenues was around SR113-114 billion but I think oil revenues will probably come to around SR152 billion,” Saeed Al Shaikh, chief economist at National Commercial Bank, told ITP.net.
“If the government maintains the same expenditure that they announced at the beginning of the year of around SR202 billion, that should leave us with around SR10 billion of deficit for this year, much lower than what they initially estimated.”
The government covers the budget deficit through loans from Saudi Arabian banks, the state pension fund and the General Organisation for Social Insurance (GOSI.) “With the amount of deficit expected to be SR10 billion, there shouldn’t be a problem taking it from any of those institutions,” says Dr Al Shaikh.
However, the much improved short term budget outlook can’t hide the fact that the public deficit now amounts to SR630 billion. According to Dr Al Shaikh, SR27 billion is spent annually servicing that debt.
The government insists that it is serious about cutting the debt and controlling expenditure. In recent circulars, Crown Prince Abdullah has told wasteful government officials to change their ways.
Senior government figures have also claimed that privatisation will be speeded up and more economic reforms implemented. However, the foreign investment law still has a long list of industries where 100% foreign ownership of local ventures is excluded.