Saudis must rationalise spending

Riyadh: Anticipating a fall in crude oil revenues due to declining consumer demand in the wake of the global financial crisis, a prominent Saudi banking expert underlined the need for rationalisation of government spending in the immediate future.

Addressing an economic seminar on the global financial crisis here on Wednesday, Dr Saeed Al Shaikh, senior economist at the National Commercial Bank, said that the impact of the crisis on Saudi Arabia would be limited on the assumption that the price of crude oil is expected to remain above a level at which the kingdom can achieve a balanced budget next year.

Saudi Arabia's budget for 2008 estimated the Kingdom's oil revenues would reach 298 billion riyals in 2009 if export prices of crude oil per barrel remain above $50.

Al Shaikh predicts that oil prices will fall further next year as the current economic crisis spills over to more countries in Eur-ope and the developing countries and as far as Japan.

"In light of the fall in crude oil revenues, Saudi Arabia, the largest producer and exporter of crude oil in the world, should rationalise its current spending and restrict its capital expenditure," he said, adding that the Kingdom's official foreign exchange reserves are expected to reach 940 billion riyals.

This will be sufficient to continue with its investment projects even though financing by the private sector has fallen.

Meltdown

Al Shaikh also noted the sharp decline in the Tadawul All Shares Index following the global economic meltdown despite strong domestic economic performance.

Referring to the Kingdom's implementation of huge infrastructure projects and giant industrial estates, Al Shaikh said that there was a 180 per cent increase in the value of these projects over the last 29 months to $556 billion.

As for the value of the projects that have been awarded or are in the process of being awarded, he said that they have also increased to about $272 billion.

He also underlined the importance of revising priorities in implementing these projects in the wake of the slump in the flow of foreign capital investments as a result of the global crisis.