RIYADH, 28 January 2003 — The Saudi Arabian Monetary Agency (SAMA) has emphasized the need to tackle the Kingdom’s public debt, saying it would have an adverse effect on the country’s development and investment projects.
Presenting the 38th annual report of the Saudi central bank to Custodian of the Two Holy Mosques King Fahd on Sunday night, its governor, Hamad Al-Sayyari, urged the government to allocate the budget surplus to repay the country’s staggering public debts. The Kingdom’s public debts reached $173 billion at the end of 2002.
To tackle the public debt, Sayyari stressed the need to balance the budget through cuts in public spending and according priority to capital investments. "The government must restrict its spending to budget allocations and use any surplus to repay part of the public debt," he added.
"Our economic challenges stem from modest growth rates, over-dependence on oil revenues and high population growth rates," he told the king, adding that diversification was necessary to reduce the impact of fluctuating oil prices on the domestic economy.
The SAMA report covers the main developments of the Saudi economy in 2001 and parts of 2002.
The Kingdom, with a current production of more than eight million barrels a day, generates more than 80 percent of its national income from oil.
Due to surging oil prices, the Kingdom boasted $54.4 billion in revenues in 2002, 30 percent over budget, but actual spending also exceeded allocations by 11 percent to hit $60 billion from a projected $53.9 billion.
The 2003 budget projects a $10.4 billion deficit with expenditures estimated at $55.7 billion and revenues at $45.3 billion.
Harvard professor Richard Vietor told the Jeddah Economic Forum last week that the Saudi economy must grow more than 7.3 percent annually for the next 25 years in order to catch up with developed nations, compared to the average growth rate of 1.8 percent during the 1990s with an unemployment rate exceeding 15 percent.
Sayyari said the state must encourage the private sector to play an active role and run public services on a commercial footing. Saudi Arabia late last year opened up 20 vital sectors for privatization with both local and foreign investors. But it has not yet set out detailed plans for deregulation.
Sayyari warned against rising unemployment and called for greater efforts to avoid its economic and social impact.
Riyadh has managed a budget surplus only once since 1982 with $6.1 billion in 2000 when oil prices increased sharply. Growth rates in real terms were 0.74 percent last year, 1.2 percent in 2001 and 4.9 percent in 2000.
Sayyari said the monetary and banking sectors continued to grow in 2001 and 2002 and bank deposits increased by 16.8 percent, while net foreign assets of banks increased by 32.1 percent.
For the third consecutive year, the local stock market continued its good performance leaving a positive impact on the monetary, banking and financial sectors.
The governor said the recent economic measures by the government aimed at diversifying sources of income, broadening the production base and enhancing the role of the private sector in the development process as well as mobilizing local and foreign savings for investment in the productive and service sectors.
He called for the removal of all obstacles to the machinery of free enterprise, the proper use of available resources as well as greater efforts to mobilize domestic savings so as to make them conform to growing investment requirements.
He also stressed the importance of developing curricula and training programs in accordance with labor market requirements.
