US attacks to have modest impact on Saudi economy: report
The terror attacks in the United States will have a modest impact on the Saudi budget for the remainder of 2001, but oil income will substantially drop next year, a leading economic report predicted Tuesday October 16.
"We have made no change to our 2001 forecasts for one percent real Gross Domestic Product growth, a balanced budget, a $2 billion current account surplus" and a zero inflation rate, said the Saudi American Bank (SAMBA) report.
The report, prepared by chief economist Brad Bourland, projected a $10 billion decline in oil revenues from a likely $66 billion in 2001 to $56 billion in 2002, mainly due to a slowdown in world economy and OPEC oil production cuts to boost prices. It also projected that the September 11 attacks will cause a decline in Saudi private assets overseas, a slowdown of inward foreign direct investment flows, and a modest impact on foreign exchange rates.
The value of Saudi government foreign assets, estimated at $83 billion by the end of July 2001, has not declined due to the crisis, because most of it is in fixed income instruments, not equity. But Saudi private assets, estimated by SAMBA at $750 billion, 35 percent of which is invested in equities, is believed to have lost $50 to 55 billion0, Bourland said.
The report said that the most likely economic forecast for 2002 is for a zero GDP growth, a $ 5 billion budget deficit on a three percent increase in spending and a $ 4 billion current account deficit.
"In 2002, the Saudis face an oil price-production trade off that appears likely to lower oil revenues. Even a price sustained within OPEC's $22-28 price band is very likely to come at the cost of lower oil production," the report said.
For the remainder of 2001, the Saudi economic performance will be solid and oil production is unlikely to be altered much before year-end. The report also expected outstanding government debt, nearly all of it domestic, to remain at 610 billion riyals ($162.6 billion), representing 95 percent of forecast 2001 GDP. — (AFP, Riyadh)
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)