JEDDAH, 30 November 2002 — Two economic analysts have urged the government to introduce income tax for both Saudis and expatriates as a solution to the public debt that increases as the budget deficit continues, Al-Hayat reported yesterday.
The economists emphasized the importance of privatization and the need to review the present approach toward bank interest to reinforce the country’s economic base.
They also said “the fall in actual deficit in the 2002 budget apart from the projected drop in deficit in the 2003 budget of 2003 to SR39 billion point to considerable improvement in revenues.”
Abdul Rahman Al-Sonai, a Saudi economist, said tax is a major source of revenue in a free economy. He also recommended the setting up of a committee of religious scholars and economists to review bank interest as a charge for services and loans extended by the Kingdom’s banks.
Sonai opined that the government’s privatization drive and its plan to offload its burdens will reduce the public debt.
“But, the government has privatized until now only 30 percent of its stakes in public companies and still retains 70 percent as a source of revenue in case of fluctuations in oil price,” he observed.
He hoped that public debts could be done away with in four or five years if the government continued to privatize and introduced taxes and viewed bank interest as a service, not usury. He also pointed out that the government’s efforts to privatize more of the public sector and the rise in oil price under the shadow of another war in the region are factors that would lead to a decrease in the budget deficit further.
According investor and stock market expert Fahd Al-Faryan, the increase in public spending projected in the new budget will boost the share market and real estate business. Al-Faryan does not think that the budget deficit will make any negative impact on the stock market. He pointed out that despite budget deficits in previous years the Kingdom’s share market registered remarkable growth at the rate ranging from 20 percent to 30 percent and they did not show a downward trend except in exceptional situations such as the looming war in Iraq. He said a possible war in Iraq would cause 30 percent loss to Saudi shares.
He said the rise in public spending would boost the real estate market. In the past two weeks the SR600 million worth real estate deals were struck following indications of a favorable budget and rising oil prices in addition to the return of some Saudi investments abroad. .
