Shortfall in Saudi budget may quicken reforms and privatization
Saudi Arabia's larger than expected budget deficits for 2001 and 2002 as a result of a slide in crude revenues may act as a stimulant to quicken the pace of reform and privatisation in the oil-dependent state, economists said Sunday, Dcember 9. But they insisted that 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 Saudi government declared Sunday a $12 billion budget deficit for 2002 and estimated the shortfall for the current year to be $6.7 billion after projecting a zero deficit.
"I believe that pressure on reforms will build up ... and that the pace of privatization will be faster," said Said Al-Shaikh, chief economist of the National Commercial Bank (NCB). "This situation reminds us of the 1998-99 era when as a result of a drop in oil prices and revenues, the Saudi government took a number of important decisions on reforms and privatization," Shaikh told AFP.
Saudi Arabia established a public authority for foreign investments, lifted subsidies on electricity and formed a Supreme Economic Council in addition to other steps to modernize the economy. Revenues for 2002 were projected at $41.9 billion and expenditures at $53.9 billion. The kingdom boasted a surplus of $6.1 billion in 2000, the only surplus since 1982.
Brad Bourland, chief economist for the Saudi American Bank (SAMBA) believes that the main focus should now be on diversifying the sources of income and reducing dependence on oil. "In think that diversification of sources of income should remain the top priority now. The Saudi government has been expecting a weak oil market for 2002 and the budget projections exactly reflected that," Bourland said. Bourland believes that the Saudi privatization program has been doing well and there was not much space for a "greater acceleration".
Abdulwahhab Abu Dahesh, senior economist at Riyad Bank, said it was time the government 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," he told AFP. "The government should prepare a comprehensive package for taxes to be reviewed by specialists. The time is now ripe for this," he added.
Saudi Arabia is a tax-free country and the government does not contemplate levying income tax. Shaikh believes that the state can start with corporate taxation because income tax is such a sensitive issue. Saudi Arabia does not disclose the figures for oil and non-oil revenues or the price of oil in the budget, but the economists estimated that the 2002 oil price had been set between $15 and $17 a barrel against $22 in 2001.
Shaikh put non-oil revenues at $11.7 billion and oil income at $30.2 billion. Abu Dahesh expected oil revenues to improve as crude prices are forecast to start recovering in the second half of next year. — (AFP, Riyadh)
by Omar Hasan
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)