Wednesday's budget was a good-news budget. With a surplus of SR98 billion for 2004 and gross domestic product at SR931.8 billion, the Kingdom finds itself in a fortunate and promising position. What this balanced budget — with expenditures matching projected revenues of SR280 billion means is that the government has been able to focus liberally on key spending areas as well as paying down public debt.

The emphasis on education is most welcome. Fully 25 percent of government expenditure, some SR70.1 billion next year, is to go on education and training. The result will be that our young people can look forward to even better education at all levels including higher education, while funds are available to boost the skills of Saudis who are already in the work place. It is also a sign of the newfound confidence induced by the second year of budgetary surplus, that public debt will be reduced by SR46 billion to SR614 billion.

It is of course significant that this budget comes at the start of the 8th Five Year Plan and includes some SR41 billion for development projects. A core ambition of the new plan is the continued diversification of the economy away from its reliance on oil. However, as projections yesterday made clear, the Kingdom still has a long way to go. It is expected for instance that non-oil exports next year will rise 24 percent to SR51 billion but this figure still accounts for only 11 percent of total exports.

With economic growth at 5.3 percent in real terms, the economy finds itself in its strongest position for a decade. There is a real sense of anticipation that reforms, not least to the capital markets, are going to unleash yet further growth and prosperity. Business confidence is high, companies are prospering and investors are eager to channel fresh capital into business to create more jobs and more wealth.

There are, however, concerns that the return of robust finances may impact on the vigor with which economic reforms will now be pursued. Difficult issues of change began to be addressed when it became clear that the Kingdom needed to diversify away from its reliance on oil. The reform of the capital markets and the creation of the Capital Markets Authority were, for instance, seen as crucial to empowering the private sector and unleashing capital which had in the past searched for attractive investments.

Saudi Arabia’s restored economic performance may now cause some to believe that these sometimes-difficult changes are no longer necessary. Against this view should be weighed the fact that a great many people in the Kingdom have prepared for the expected reforms and further delay might dent confidence.

The new budget, nevertheless, defines the tremendous opportunities that the strong oil price now presents to the Kingdom. It is prudent and far-sighted and it is aiming expenditure where it will count most, not least at education and economic diversification. With the expected capital market changes and a new stock market, the foundations for further strong growth have been laid.