Saudi economy remains dormant despite overspending

Saudi Arabia was again tempted by strong oil prices this year to overshoot projected expenditure by at least 11 per cent, but the extra funds have failed to spur enough economic growth to tackle the festering unemployment problem.

The kingdom's gross domestic product, which accounts for nearly a quarter of the total Arab economy, will likely grow by around 1.7 per cent this year to extend a slowing economic pace since the world's oil superpower basked in one of its best financial and economic years in 2000.

"From 4.8 per cent in 2000, Saudi Arabia's real GDP grew by only 1.1 per cent in 2001 and is expected to increase by around 1.7 per cent this year," Saudi economist Ihsan bu Hlaika said in a study on the kingdom's budget this year.

"Growth remained slow although the government overshot planned spending by 11.4 per cent...this is because current spending dominated overall public expenditure and around two-thirds were channelled into salaries for the nearly one million civil servants...investments were as low as 18 per cent of the GDP."

Official Saudi figures showed actual spending this year was expected to rise by around 23 billion Saudi riyals ($6.1 billion) over the planned expenditure of 202 billion riyals ($53.8 billion).

Revenues were estimated at nearly 47 billion riyals ($12.5 billion) above the projected 157 billion riyals ($41.8 billion).

Higher revenues slashed the forecast deficit of 45 billion riyals ($12 billion) to only 21 billion riyals ($5.6 billion), contrary to earlier expectations by Saudi economists that the shortfall would be cut to a negligible level because of strong oil prices.

According to Said Al Shaikh, chief economist at the National Commercial Bank, the actual deficit had been forecast at below $two billion but it remained relatively high, at around 3.2 per cent of the GDP, because of overspending.

"We had anticipated an increase in actual expenditure but not that much...most of the increase was in current spending," he said.

Saudi Arabia is targeting a zero budget deficit in 2005 but experts doubt that goal would be realised in the absence of stable oil prices, a sharp expansion in non-oil revenues and restraint in expenditure.

Bu Hlaika said the deficit this year pushed Saudi Arabia's cumulative budget shortfall to 434 billion riyals ($115.7 billion) since 1990, nearly two thirds of the domestic public debt. This means that the 2002 fiscal year is ending with the government debt swelling by a further three per cent, he added.

High real growth in the Saudi economy is vital for its drive to reverse a deterioration in the employment problem that was virtually absent during the oil boom 20 years ago, when the Kingdom was a major capital exporter.

The problem was caused by a high population growth of more than three percent and an economic slowdown as a result of falling oil prices and output.

The Kingdom, which controls nearly a quarter of the world's recoverable oil wealth, has maintained relatively high spending in a bid to stimulate the dormant economy and at the same time encourage the private sector to pump more funds into projects needed for economic diversification.

But such a policy has only aggravated the public debt to become almost equal to the GDP.