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Sunday, 9 December, 2001, 17:53 GMT
Saudi Arabia misses budget target
Aramco refinery at Ras Tannura
Saudi Arabia is the world's biggest oil producer
Weak oil prices will destroy Saudi Arabia's hopes for a balanced budget this year, pushing it into deficit by about $6bn.

In 2002, the budget deficit will double to $12bn, the Finance Ministry said.

A cabinet meeting chaired by King Fahd decided to freeze government pay and block the creation of any permanent new state posts during 2002 as it approved the budget.

Some economists greeted the budget shortfalls as a possible catalyst for faster reform, hoping it might force the world's biggest oil producer to diversify its economy.

Future hopes

"I believe that pressure on reforms will build up...and the pace of privatisation will be faster", said Said al-Shaikh, chief economist at the National Commercial Bank.

Since 11 September, Saudi Arabia's economic difficulties have also raised fears that unemployed youth could be increasingly drawn to militant Islamic groups like the al-Qaeda terrorist network.

Although budget deficits are the norm, the projected $12bn hole in Saudi Arabia's finances next year is the worst since 1998, when Saudi crude oil fetched on average just over $12 per barrel.

Crude oil prices hit a 29-month low in November. The price of the benchmark Brent crude, closed last week in London at about $19.20 per barrel.

Production cuts

Saudi Arabia and other members of the oil producers' cartel Opec, the Organisation of Petroleum Exporting Countries, want to support the price of crude oil by reducing output.

They had been frustrated by the reluctance of non-Opec member Russia to join in but on 5 December Russia finally agreed to cut its production.

As well as freezing government hiring and pay, the Saudi government capped state spending on projects at $28bn in 2002.

No foreign borrowing

Finance minister Ibrahim al-Assaf insisted the country will not need to borrow from foreign banks to cover the budget deficit.

Saudi financial establishments and national reserves are capable of meeting the shortfall....The position of our banks is excellent," he said.

The government set a budget of 202bn riyals ($53.9bn) for 2002.

It forecast a deficit of 45bn riyals ($12bn) for 2002, following a deficit of 25bn riyals ($6.6bn) in 2001.

Revenue next year is projected to be 157bn riyals ($42bn). Oil accounts for three quarters of revenue.

Growth slows

The government expects a positive trade balance this year of 31.3bn riyals, down from 53.7bn

Overall, gross domestic product (GDP) is forecast to have grown by 2.2% in 2001 if measured at constant prices - but at current prices it will have shrunk by 1.8%, the Finance Ministry said.

Unemployment is currently between 15% and 20% in Saudi Arabia, where foreign migrants make up 65% of the workforce.

See also:

05 Dec 01 | Business
Russia cut prompts oil price surge
23 Nov 01 | Business
Oil's tumultuous week
24 Nov 00 | Business
Saudi Arabia's hidden giant
04 Jun 01 | Business
Saudi Arabia signs gas deals
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