LONDON, 12 January 2004 — The Riyadh-based Consulting Center on Finance & Investment (CCFI) did Saudi Arabia a favor in the run up to the New Year. Its Special Report on the Saudi budget for 2004 published toward the end of December 2003, is both revealing and frank.
The current Achilles’ heel of the Saudi economy is the burgeoning public debt which currently stands at SR660 billion — a staggering 83 percent of GDP. In terms of “street economics,” according to CCFI, this figure translates into a debt of SR27,000 for every Saudi.
The CCFI suggests that a bloated bureaucracy; increased post 9/11 security concerns; WTO accession; increased defense and security expenditure; debt servicing; unemployment and the Saudization policy; increased healthcare demands of a young and growing population; and the urgent needs for human resource development and education have all put enormous pressure on government spending. Salaries alone constituted a staggering SR138 billion in 2003. The Saudi economy is an “unreal economy” in the way it is managed with economic management done on a piecemeal and year-by-year basis. It seems to be driven by immediate priorities and outside pressures, such as those from the International Monetary Fund (IMF) and the WTO. Oil price windfalls can plaster over the serious cracks in the Saudi economy in the short-term but in the long-term they merely serve to exacerbate an increasingly intractable problem.
Since the oil price boom, Saudis have never had it so good. They have been nurtured on the notion that the state looks after everything — education, medical care, social security, security and so on. With increased prosperity and foreign travel, expectations of young Saudis have also increased.
The ten-point priority challenge for Saudi economic management for 2004 should be:
a) Fiscal reform.
b) Full budget transparency — including a breakdown of the allocation and expenditure for the Royal Court, defense, and security.
c) The urgent adoption of a 20-Year Economic and Financial Sector Master Plan.
d) Increased political representation.
e) A review of government spending — pruning the bureaucracy, the elimination of disguised unemployment (patronage and other such jobs).
f) Urgent reform of the education system — both in substance (quality) and form, complete with standard setting and targets.
g) Reform of Saudization and a focused strategy aimed at tackling youth unemployment.
h) A much more urgent and comprehensive reform of the legal and regulatory infrastructure in the Kingdom.
i) A speeding-up of the privatization policy with proceeds not being used to service public debt.
j) The establishment of a Saudi Millennium Fund. This will include some of the oil price windfalls, proceeds of privatization; oil and gas prospecting and exploration fees; etc. The aim of the fund will be to provide for future emergencies and for future generations.
Of course, no one can expect the Kingdom to implement these overnight or even in a year. But at least, let 2004 be the year zero of Saudi economic management and planning.
