In the face of the worsening international economic downturn, the response from governments virtually the world over has been to spend the way out of recession. The $475-billion budget for 2009, just unveiled, shows that the Kingdom is following the trend, but with a significant difference. Unlike most governments which are putting billions into rescuing banks and businesses, the Saudi answer is to go for expansion.
Despite the oil price slump, the authorities have opted to continue investing heavily in mega development projects. Projected spending is up by 16 percent on last year’s planned SR410 billion expenditure. It is almost as if they have decided to beat the recession by spurning it.
It is a bold — indeed visionary — move; but a necessary one. The plan to create a high-tech, high-skilled industrialized economy cannot be allowed to be derailed by a global recession, no matter how powerful. The consequences of that for a country with a young, growing population do not bear thinking about.
Saudi Arabia has one massive advantage. Unlike so many other countries whose staggering spending plans are based on borrowing that will take years to pay back, the Kingdom is in the enviable position of having abundant financial resources in hand to pay for its plans. It can easily afford next year’s anticipated SR65 billion deficit. In a week’s time, the government will have notched up a budget surplus of SR590 billion this year notwithstanding the slide in the price of oil since July. A year ago, budget planners expected the 2008 surplus to be a mere SR40 billion. Add that SR590 billion to last year’s SR178 billion surplus and the Kingdom’s economic strength becomes abundantly clear. A deficit of SR65 billion looks like chicken feed.
There will be a further advantage for the Kingdom in continuing to go for growth. With other economies on hold or in recession, it will again become one of the world’s most attractive market places. Foreign businessmen and contractors are going to see it as the one sure place they can sell their wares and make money. The competition to provide it with the technology and goods it wants will be fierce. It is a buyer’s market now. Prices will come down. That is excellent for Saudi consumers and for Saudi Arabia. It will get more for its money. It can even renegotiate existing contracts.
The government’s determination not to be blown off course by the global downturn is seen in one other aspect of the 2009 budget, albeit a less obvious one. For the first time in years, income is not based on a conservative assessment of oil prices. It is based on a figure not far off the present price. In past years, budgets were always based on a figure about half the oil price at the time. But this is not a time to be timid. It is a time to be bold — and the budget is that.
Three-quarters of a century ago, faced with the ravages of another recession — the Great Depression — the then US President Franklin D. Roosevelt launched a series of massive national investments to put the US economy back on its feet. It was called the New Deal — and it worked. The 2009 Saudi budget may come to be seen as a modern day version of the New Deal philosophy. There is every reason to believe it is going to work just as well.
