JEDDAH, 9 December 2004 — The Kingdom announced a balanced budget yesterday for the new fiscal year after reaping an SR393 billion windfall from record prices for its crude exports in fiscal 2004 which recorded a budget surplus of SR98 billion ($26.1 billion).

Following are the highlights issued by Ministry of Finance of the outcome of fiscal 2004 together with those of the new budget for fiscal 2005 and the recent economic developments:

The Outcome of Fiscal 1424/1425

The Ministry of Finance projects revenues to reach SR393 billion in 2004, while expenditure amounts to SR295 billion; there were increases in some emergency expenditures as well as settlement of payments to farmers.

Also, an amount of SR41 billion was earmarked for development projects, and it was decided to increase the capital of the Saudi Credit Bank by SR2 billion and that of the Saudi Real Estate Fund by SR9 billion. The remaining revenues will be allocated to settle part of the public debt. Preliminary estimates indicate that public debt is expected to drop from its level of SR660 billion at the beginning of the year to around SR614 billion at the end of fiscal 1424/1425.

National Budget for 1425/1426

This year’s budget continues to focus on optimizing available resources and giving priority to social infrastructure and services, especially in education, health, social affairs, municipal services, water and sewage and roads. Moreover, the budget puts special emphasis on capital expenditures that will create more job opportunities and enhance economic activities, and boost economic growth.

The following are the main features of the new budget:

1. Total revenues for fiscal 2005 are projected at SR280 billion.

2. Government expenditure for fiscal 2005 is budgeted at SR280 billion.

Total cost of new projects in the budget amounts to SR75.5 billion.

Appropriations

Appropriations for the main development and public service sectors for 2005 are as follows:

1. Education and Manpower Development:

a. Expenditure amounts to SR70.1 billion including for technical and vocational training.

b. New projects worth SR14.7 billion.

c. New projects include 1,420 new schools in addition to 2,260 schools currently under construction, rehabilitation of 2,000 existing school buildings, 22 university colleges, 4 university hospitals and completing infrastructure of some universities. In the technical and vocational training sector, the new budget includes 10 new technical colleges, 32 vocational training centers, 19 other technical and training buildings, opening of 5 new technical colleges and 11 vocational training centers.

2. Health and Social Affairs:

a. Expenditure amounts to SR27.1 billion.

b. New projects worth SR4.6 billion.

c. New projects include 420 primary care centers, 23 hospitals with a total capacity of 3,150 beds, expansion and development of existing health facilities, and furnishing newly completed hospitals.

Meanwhile, there are 62 hospitals under construction which will add 7,000 beds.

3. Municipality Services:

a. Expenditure amounts to SR 10.7 billion.

b. New projects total SR7.2 billion.

c. New projects include roads in cities and towns, intersection and bridges, road lights, and cleaning-related projects.

4. Transportation and Telecommunication:

a. Expenditure amounts to SR8.9 billion.

b. New projects total SR8.4 billion.

c. New projects include roads totaling 6,700 kms (there are 10,600 kms of roads currently under construction) , ports, airports, and railroads development, first phase development of King Abdulaziz Airport in Jeddah, and new postal services.

5. Water, Agriculture, and Infrastructure Sector:

a. Expenditure amounts to SR19.2 billion.

b. New projects total SR19.1 billion.

c. New projects include water, sewage, and desalination projects amounting to SR17.2 billion. In addition the budget includes projects in the two industrial cities of Jubail and Yanbu, agricultural projects, and flour mill projects.

6. Specialized Credit Development Institutions and Government Financing Programs:

There will be an increase in the capital of Saudi Credit Bank and the Real Estate Development Fund to enable the two institutions to increase their lending programs. In addition, the other specialized development institutions will continue to provide credits to projects and services in the areas of industry, agriculture, and major infrastructure projects. These credits are projected to be over SR10 billion in year 2005.

Also, the new budget includes appropriations for lending programs of private universities, colleges, and schools.

Economic Developments in 2004

1 — Gross Domestic Product

GDP is estimated to grow in 2004 by 16.9 percent at current prices and at 5.3 percent at constant prices, reaching SR931.8 billion. One of the major factors contributing to this growth is the increase in oil prices as well as the quantity produced. As a result, the oil sector is expected to grow by 28.2 percent at current prices.

Private sector GDP is estimated to grow by 6.7 percent at current prices and by 5.7 percent at constant prices. In particular and in real terms the non-oil industrial sector is estimated to grow by 6.4 percent, construction sector by 7.5 percent, electricity, gas, and water sector by 4.5 percent, and transport and communication sector by 7.8 percent, and wholesale, retail, restaurants and hotels by 4.9 percent at constant prices.

2 — General Price Level

Inflation, as measured by the cost of living index, is estimated to have increased by 0.2 percent in 2004, while the non-oil GDP deflator has shown a small increase of 1 percent.

3 — Balance of Payments

According to SAMA’s preliminary data, current account is estimated to record a surplus of SR193.2 billion in 2004 compared to 105.2 billion in 2003. Non-oil exports are estimated to grow by 23.8 percent in 2004 totaling SR51 billion, representing 11.3 percent of total exports.

4 — Money and Banking

The government’s fiscal, financial and monetary policies continue to be guided by the objective of maintaining stability in price level and exchange rate. The broad money supply during the first ten months of 2004 grew by 9.6 percent compared to 4.2 percent in the same period of the pervious year.

With regard to banking sector, bank deposits recorded a growth of 10.1 percent during the first ten months of 2004, total bank claims on public and private sectors increased by 26.3 percent; also their capital and reserves increased by 12.9 percent reaching SR53.1 billion.

Other Developments

A number of factors and developments have enhanced the confidence of the private sector leading to its robust growth. These include:

a. The implementation of the capital market law after the appointment of the market authority board in July 2004. Its first operation was the approval of offering part of the shares of telecommunication Company (Ittihad Etisalat), and 70 percent of the shares of the National Company for Cooperative Insurance will be sold to public before the end of the year.

b. The (A+) long-term local currency and (A) long-term foreign currency sovereign credit rating assigned to the Kingdom by Standard & Poor’s for the second year in a row.

c. The (A) sovereign credit rating assigned to the Kingdom by Fitch in 2004.

d. The stock market index continued to increase during 2004 closing at almost 7,900 on 6/12/2004 compared to 4,400 at the beginning of the year.

e. New fiscal, institutional, and structural reforms have been introduced in 2004 such as the new corporate tax law, mining code, and the by-laws of natural gas pricing, the by-laws of the program for loan guarantees of small and medium enterprises (SME’s), and the by-laws of private sector participation in e- government activities.

f. Active participation of the private sector in the government procurement with the total number of government contracts signed with the private sector in 2004 amounting to 2,850 with a value of around SR38 billion.