Saudi public debt to surge after huge deficit
Saudi public debt is expected to surge to new highs after the OPEC kingpin announced a huge budget deficit for 2002, but economists believe the government will have no problem financing it on the local market. Saudi Arabia on Sunday, December 9 announced a $12 billion budget deficit for 2002 and estimated that the shortfall for the current year will be $6.7 billion after having projected a balanced budget.
Finance Minister Ibrahim Al-Assaf estimated that public debt, all owed domestically, will hit $168 billion at the end of 2001, four billion dollars higher than the preliminary Gross Domestic Product (GDP). The debt is set to surge to $180 billion at the end of next year when the government borrows from the local market to cover the new deficit.
Assaf ruled out any foreign borrowing to meet the shortfall, saying the position of local banks and financial institutions was excellent. "The government should not face difficulty obtaining financing for the 2002 projected deficit," said Brad Bourland, chief economist of the Saudi American Bank (SAMBA) in a report on the new Saudi budget.The kingdom can cover the deficit through bond issues or draw-down of foreign assets, estimated at more than $15 billion.
"Should it all be financed with debt, then debt would rise to 107 percent of 2001 preliminary GDP," Bourland said. The government allocates some eight billion dollars as part of the expenditures annually to pay back the debt and the incurred interest. The senior economist at Riyad Bank, Abdulwahhab Abu-Dahesh, believes time is suitable to borrow from the local market because of low interest rates and to finance development programs.
"Liquidity in Saudi Arabia is very high and assets of the banks are the most sound in the Middle East," he said. Oil income makes up more than 80 percent of total revenues. The price of Saudi oil has crashed from around $25 a barrel by end of August to around $16 today following the September 11 anti-US terror attacks.
Saudi Arabia, the world's leading oil producer and exporter, has posted budget deficits ever since 1983 except in 2000 which saw a surplus of $6.1 billion. Total deficits for the period of 1983-1999 amounted to $200 billion, according to official statistics, part of it was financed through foreign borrowing, which the kingdom has stopped since 1994. But as public debt has grown faster than GDP, economists believe it is time for serious reform.
"The measures taken throughout the 90s do not suggest there has been a serious effort to restructure the economy to reduce its dependence on oil," said Saeed Al-Shaikh, chief economist of the National Commercial Bank (NCB). "There must be a diversification in sources of income, broadening of the private sector, opening up for foreign investments and accelerating privatization," Shaikh said.
"To halt the growth of public debt, it's time to launch a program to boost non-oil revenues. This is very important since paying back the debt may take some four decades," Ihsan Abu Haliga, a member of the Saudi consultative council, said in an article. — (AFP, Riyadh)
by Omar Hasan
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)