London, Asharq Al-Awsat- The twenty first century has seen Saudi Arabia emerge as one of the most influential global financial powers. Following 18 years of deficits the Kingdom has now recorded a surplus every year since 2000 with gross domestic product reaching $347 billion in 2006.
Saudi Arabia’s economic fundamentals have rarely been so sound. Oil revenues soared to $194 billion in 2006. As a result, Saudi Arabian Monetary Agency, the country’s central bank, estimates that the Kingdom’s trade balance was 17.5 per cent up on the previous year at SR 553.4 billion ($148 billion).
SAMA increased its foreign assets by $63 billion to $216 billion in 2006 almost equal to the total assets held by the domestic banking sector. This means that in the last four years the Kingdom’s foreign assets have risen fourfold.
This wealth is sustaining high project expenditure but also represents three years of import cover, a massive cushion against any weakening in oil prices. Growing confidence is illustrated by the country’s national budget for 2007, the largest in the Kingdom’s history.
New spending doubles
Spending allocated for new development projects will nearly double to $37 billion with a big emphasis on programmes for educational facilities, hospitals as well as the country’s ambitious new economic cities. The latter are a key part of the Kingdom’s eighth five-year development plan.
Economy and Planning Minister Khaled Al-Gosaibi says the budget aims to improve living standards, create job opportunities as well as expand educational, health and other social facilities and develop infrastructure.
Some $26 billion alone has been allocated for education and manpower development including building 2,000 new schools as well as universities for Tabuk, Najran, Al Baha including one in Riyadh dedicated to women’s higher education.
Nearly 400 primary health care centres and 13 new hospitals are planned in addition to more than 60 other hospitals in various stages of development. These are aimed to provide almost 10,000 new beds for the health service.
Road construction is another big winner with 8,000 kilometres of new highway planned in addition to 16,000 kilometres already under construction.
Delays under scrutiny
However, King Abdullah has stressed that meeting project deadlines is essential. A special ministerial committee has been formed to look at the obstacles to implementing development programmes that have caused delays in the past.
Significantly, the government is also to cut public debt to SR 310 billion from SR 366 billion, a fall from 28 per cent of GDP to 24 per cent. The debt is held by local state institutions including domestic banks, social and pension funds.
Observers believe the expansionary budget is prudent and appears to considerably underestimate potential revenues with an implied price of $35 per barrel of oil compared to an average of $55 in 2006.
Prospects for the economy continue to look good. While Saudi real GDP growth is forecast at 4.2 per cent compared to 6.2 per cent in 2006, the Kingdom is still expected to record a surplus albeit a much smaller one in 2007 while maintaining its high levels of development spending.