JEDDAH, 5 September 2004 — Experts yesterday commended the government’s decision to earmark SR41 billion from this year’s expected budget surplus for development projects and called for the establishment of a reserve fund to safeguard against future fluctuations in world oil prices.
Crown Prince Abdullah confirmed on Friday that the Kingdom would achieve this fiscal year a substantial budget surplus given the “unexpected” massive surge in oil prices.
He said SR41 billion of the anticipated surplus would be set aside for development projects while most of the rest is to be spent on repaying part of the public debt estimated at SR660 billion.
The lion’s share of the welfare allocation would be spent on projects in five sectors — water and sewage, roads and expressways, primary health care, school buildings, and technical and vocational education.
Labor Minister Dr. Ghazi Al-Gosaibi said the new allocations in support of the General Organization for Technical Education and Vocational Training would help train more young Saudis and cut short the country’s unemployment rate.
“Opening more vocational and technical training centers in various parts of the country is the best way to help our youngsters to get jobs,” the minister said and urged Saudis to make use of the training facilities.
“The new allocations for development projects provide reassurance that the long-awaited increase in investment expenditure is happening now,” the AFP news agency quoted Ihsan Buhulaiga as saying.
The largest proportion of government spending has recently been directed at current rather than capital expenditure, he said.
“The Kingdom has a developing economy but also possesses a number of aspects of a welfare state. This demands higher spending on development projects,” added Buhulaiga.
But he also warned against the danger of volatile oil prices as the world’s largest crude exporter enjoys a revenue windfall from record highs that last month touched $50 a barrel.
Expecting this year’s surplus to be around SR130 billion, Buhulaiga suggested allocating an initial payment of SR30 billion into a “safety reserve fund to protect the budget against drops in oil revenues.”
The government had projected an SR30 billion ($8 billion) deficit in the current budget with revenues estimated at SR200 billion ($53.33billion) and expenditures at SR230 billion ($61.3 billion).
But some private forecasts put total revenues at nearly double the official estimates due to the surge in oil prices, and have projected a budget surplus as high as SR131 billion ($35 billion).
Saad Al-Shaikh, chief economist at the National Commercial Bank, said allocating a significant proportion of the surplus to development projects would help keep up with increased demand for infrastructure.
“There’s a gap between supply and demand in services. Narrowing the gap between supply of water and electricity, and the actual demand is important,” he said.
The injection of SR9 billion into the Real Estate Development Fund as announced by the crown prince would help meet the demand for housing, especially “as 140,000 new families are formed annually,” he said.
However, Al-Shaikh also stressed the importance of establishing a reserve fund, saying it would “provide a cushion against a fluctuation in oil prices.”
Al-Shaikh commended channeling a “substantial” part of the surplus into repaying the public debt, “particularly as it has reached a level equivalent to 90 percent of the GDP (gross domestic product).”
Reducing the all-domestic public debt would improve investment conditions while eliminating the danger of any devaluation of the riyal should oil prices fall.
“As an oil economy, investors fear that the government might resort to devaluing the riyal if oil prices drop” in order to increase oil receipts in local currency, Al-Shaikh said.
