RIYADH, 15 December 2002 — The Kingdom’s non-oil sector will be able to sustain positive growth in 2003 at around 3.5 percent if the economic fundamentals remain strong, a study conducted by the Saudi British Bank (SABB) has predicted.
These economic fundamental factors include little inflation, strong trade balance, buoyant oil revenues and good domestic liquidity, according to the study, which was released to Arab News yesterday.
The study said that the growth in global oil demand in 2003 and political necessity of keeping oil prices high to sustain government revenues will continue to offer a Saudi oil export price of at least $21 per barrel in 2003.
The 52-page study entitled “Prospects for the Saudi economy: 2003” gives an overview of the Saudi economy with economic projections for 2003, which will largely depend on political and military factors.
“The key factor likely to be that relating to problems with the Middle East peace process and the threat of invasion of Iraq by American forces,” said the study, adding that what cannot be discounted, however, is the prospect that any military action would disrupt the ability of Saudi Arabia to physically export oil. The same adverse situation will be faced by other oil exporting countries of the region.
Given all these forces in the market, the oil price scenario could show almost unbelievable extremes, warned the study, adding that there are a number of unknown factors, which would also affect these economic projections. Some of these include the possibility of US-Iraq war, how quickly economic reforms will be pushed by the Kingdom’s Supreme Economic Council and what will be the situation on the foreign investment front.
Predicting that the government will try to keep its spending below SR230 billion in 2003, the study prepared by the SABB’s Economic Advisor Prof. John Presley, also forecasts spending of SR218 billion against government revenues of around SR205 billion. The fiscal deficit of SR13 billion in this case would neither add significantly to public debt levels and debt repayment burdens, nor damage domestic liquidity.
The move to create more jobs for Saudi nationals in education and health sectors, however, will force the government to spend more money (nearly SR200 billion) despite a call from senior ministers to be prudent in spending. Hence the public sector wage bill will now possibly be in excess of SR115 billon, public debt has been increasing and consequently interest payments on debt have risen despite the trend for interest rates to fall.
These economic forecasts, the study said, are very difficult to be made authentically especially at this time of turmoil in this region.
“There is so much uncertainty surrounding the political and military situation in the Arab Gulf at present that any forecast must be accompanied by severe qualifications,” said the SABB study adding that there still exists a number of indications suggesting a stable economic environment and sound public finances.
