RIYADH/JEDDAH, 10 December — The 2002 state budget, announced on Saturday, has been generally welcomed by economists and bankers, and particularly academics and health care administrators.
The building of 369 new schools and colleges and the allocation of SR22.8 billion for health and social care were particularly welcome.
Economists and bankers said the shortfall in the budget, as a result of a slide in oil revenue, might act as a stimulant to quicken the pace of reforms and privatization. They said the most urgent priority for the Kingdom was to diversify its sources of income and reduce dependence on oil by boosting non-oil revenues, slashing subsidies and introducing taxation.
The Kingdom’s SR202 billion budget shows a gap of SR45 billion. The projected revenues are SR157 billion. The deficit is to be covered through borrowing.
The government estimated the shortfall for the current year to be SR25 billion after projecting a balanced budget of SR215 billion. For the year 2000 the country reported a SR22.7 billion budget surplus, the first in nearly two decades.
The business community has welcomed the allocation of SR28 billion for new projects. Speaking on its behalf, Osama Al-Kurdi, secretary-general of the Council of Saudi Chambers of Commerce and Industry, told Arab News that the budget would give a boost to the construction sector, especially as 369 new schools and colleges were to be built next year. Those dealing in the manufacture or supply of school furniture and lab equipment would also benefit from the budget, he added.
He also welcomed the government’s decision to open new colleges for medicine and pharmaceutical studies in addition to 15 new hospitals. "This reflects the Kingdom’s determination to overcome the existing shortage of seats in these disciplines. Moreover, the availability of qualified Saudi doctors and pharmacists will help push forward the Saudization process in the health care sector," he said.
Commenting on the budget deficit, Saudi American Bank Chief Economist Brad Bourland said: "Past indications suggest that the government will prefer domestic borrowing from commercial banks rather than overseas borrowing, which comes in for scrutiny. Till the end of August this year Saudi commercial banks had subscribed to government bonds with a cumulative value of SR120.7 billion."
Among the other positive features of the budget, he said, was the telecommunications sector, which recorded a 9 percent growth last year. Another noteworthy aspect was the negative growth rate of inflation at 0.8 percent.
"It makes sense, since there is practically no inflation anywhere in the world, especially in dollar-oriented economies like the Kingdom. Prices have come down for all basic commodities," Bourland said.
He added that the main focus should now be on diversifying the sources of income and reducing dependence on oil.
"I think diversification of sources of income should remain the top priority now. The Kingdom has been expecting a weak oil market for 2002 and the budget projections exactly reflected that," Bourland said, adding that the privatization program was believed to be doing well and there was not much space for a "greater acceleration".
National Commercial Bank Chief Economist Said Al-Sheikh said he believed that the pressure on reforms would build up and that the pace of privatization would be faster.
"This situation reminds us of the 1998-99 period when, as a result of a drop in oil prices and revenues, the Kingdom took a number of important decisions on reforms and privatization."
Riyad Bank Senior Economist Abdulwahhab Abu Dahesh said it was time the Kingdom started thinking of taxation as a means to boost non-oil revenues and direct investments.
"The Kingdom is prepared for gradual taxation which is needed to stimulate economic sectors. Taxes can be imposed immediately on production sectors to direct investments, upgrade private sector efficiency and supervision. In fact, the Kingdom should come up with a comprehensive package for taxes to be reviewed by specialists. The time is now ripe for this," he said, adding that the tax-free Kingdom could initiate corporate taxation.
He expects oil revenues to improve as crude prices are forecast to start recovering in the second half of 2002.
