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KSA budget to stay in deficit

But the deficit may not be as huge as the SR39 billion that the government has predicted.

Saudi Arabia’s projected 2003 budget deficit of SR39 billion may turn out not to be as bad as predicted.

In a circular sent to clients, Saudi American Bank estimates that the deficit is based on a projected oil price of $17.50 per barrel. The bank doesn’t make any predictions for 2003, but draws attention to the fact that oil prices have averaged around $23.50 per barrel in 2002.

“Consistent with past conservatism in oil price forecasts, the 2003 forecast allows for a sustained and substantial decline from current price and production levels,” writes Brad Bourland, chief economist, in the circular. “With uncertainty about a possible war in Iraq, 2003 oil prices are particularly difficult to forecast. The futures market is expecting prices to decline about $3 per barrel (Brent) by yearend 2003.”

The upshot is that the Kingdom will again post a budget deficit in 2003, only perhaps not as large as expected.

The government has projected 2003 expenditure of SR209 billion, against anticipated revenue of SR 170 billion.

In 2002, the government spent SR225 billion against revenue of SR204 billion, a deficit of SR21 billion ($5.6 billion.) The government had projected spending of SR202 billion against revenue of SR157 billion, a deficit of SR45 billion ($12.5 billion.)

The government’s debt is now estimated to be SR650 billion, 94% of 2002’s GDP of SR 695 billion. If the government borrows to fund 2003’s projected budget deficit, debt could rise to 100% of the country’s GDP.

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