High oil prices boost Saudi economy
Strong oil prices coupled with a quickening pace of reform will help bring a 5.3 per cent leap in GDP and a record $21 billion current account surplus in the Saudi economy this year, the kingdom’s leading bank said in a report yesterday.
The Saudi American Bank’s midyear report said the world’s leading oil exporter was enjoying “its strongest year for oil revenues since the peak of the oil boom in 1981.”
“This is by no means, however, resulting in a second boom in the economy overall, as the government is using the high oil revenues to restore fiscal health after 17 years of budget deficits and a cumulative debt that exceeds 115 per cent of GDP,” said the report.
“Nor are the high revenues derailing the aggressive reform agenda underway to spur the private sector,” it added.
The bank said year-end figures will be “impressive, even assuming a substantial decline in oil prices during the second half of the year.”
It forecast that nominal GDP will grow by 20 per cent to $169 billion and the real GDP will grow 5.3 per cent, the highest level since 1991.
The government’s seventh five-year economic development plan running till 2005 predicts a 3.16 per cent annual growth rate in gross domestic product (GDP).
The bank said the current account in the balance of payments will show a surplus of $21 billion.
However, Saudi American Bank cautioned that beyond the numbers, “the picture is more subdued for the economy as a whole.”
It noted that GDP growth was largely attributable to three oil production increases so far this year and that a forecast of three per cent growth in the non-oil private sector is not enough to absorb all new job-seekers.
“Unemployment of Saudi males will reached an estimated 14 per cent overall and about 20 per cent for Saudis in the 20-29 year age group,” the bank said.
The government in July created a special fund to develop human resources and find private sector jobs for Saudi nationals.
“Oil revenues, even at current high levels, are no longer adequate to sustain growth and job creation,” the bank warned.
Saudi Arabia has launched an ambitious reform programme, including a new foreign investment law passed in April and an opening to tourism, to spur private sector growth and reduce dependency on the price of crude oil.
“The reforms are not advanced enough yet to give traction to private sector-driven growth,” the report warned.
“If there is strong follow-through ... on the reforms and the government continues to use this prolonged period of high oil revenues to reload the fiscal canon, then the mid- and long-term prospects for the Saudi economy will be bright.” – AFP.
©--Agence France Press.