Business | Oil & Gas
Saudi plans could skid on slippery oil
Some of the grand development plans in the world's biggest oil exporter could fall victim to falling crude prices, analysts say, but canny money management means Saudi Arabia has no reason to hit the panic buttons yet.
- Agencies
- Published: 00:08 October 25, 2008
Riyadh: Some of the grand development plans in the world's biggest oil exporter could fall victim to falling crude prices, analysts say, but canny money management means Saudi Arabia has no reason to hit the panic buttons yet.
The government has sought to reassure Saudis that modernisation schemes are on track after fears of a global economic slowdown helped push oil prices down to around $70 (Dh257) a barrel this month from double that three months ago.
"Citizens should be sure that the country is moving calmly and all the coming days will be happiness and prosperity," Saudi King Abdullah Bin Abdul Aziz was widely quoted in state media as saying this week as plans were announced to set up a new women's university.
Riyadh is now joining the queue of Opec producers scrambling to hold up the price of crude at an emergency meeting in Vienna which started on Friday. Saudi Arabia has already begun to pare back production in line with expectations of lower demand.
Conservative policies
But conservative fiscal policies will put the country in good stead to weather lower oil, with analysts saying the current year's budget is based on a price of around $45-50 a barrel, while expansion next year will require around $55-62.
"I don't think the finance crisis is as much of an issue as oil. In Saudi Arabia they already have measures to control credit," said Monica Malik, economist at investment bank EFG-Hermes.
"As long as it's above $60 Saudi Arabia be okay this year or next year, but if anything below will effect sentiment and the level at which the government can increase expenditure."
Development plans could suffer not only from the fall in government revenues but also from tighter international finance for private sector projects.
The kingdom, where citizens pay no tax has run budget surpluses in recent years allowing it to pay back debt and develop infrastructure.
Total spending of 410 billion Saudi riyals ($109 billion) in the 2008 budget was a 7 per cent increase from the year before, covering areas like education, health, water, agriculture, roads and railways.
Masses
Adel Al Harbi, an editor of Al Riyadh daily, said ordinary Saudis had no sense that the modernisation plans were under threat from falling oil or the finance crisis.
"Saudi budgets have not exaggerated the oil price and the government has said it wants a fair price for oil consumers and producers," he said.
"What assures us is that during the oil boom the government has not actively sought high oil prices."
Much development spending is not calculated as part of the budget, while the wealth of the Al Saud ruling family can overlap with the wealth of a state that carries their name.
The government has gone on a defence spending spree in recent years, but details are not made public.
State oil giant Aramco plans investments of $129 billion over the next five years to increase both domestic and international capacity across the energy sector.
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