This text comes from the MIRA website: http://yaislah.org/index.php?/english/empp7
5. The Economic Situation
Note: This report was prepared before the publication of this years budget figures.
Within little over a decade, overseas assets of over US$170bn have been turned into a debt equal to that sum or higher, a fact confirmed by an article published by a leading Saudi financial expert (AbdulAziz Al-Dakheel an Ex deputy minister of finance – AlHayat Feb 2001). Early Jan 2001 the minister of finance admitted that the countrys debt exceeds SR600bn. The internal debt as we will see is already above GNP. The collapse in oil prices during 1998 and early 1999 has exposed the fragile status of the Saudi economy and its full dependence on oil. All stories of diversity of revenue and productive infrastructure are proved by this exposure to be untrue. The 1999 budget deficit increased to around $12 billion ($15 billion according to Financial Times), the stock market lost 27% of its value, all projects were frozen and commercial activity declined. The situation is expected to became worse the following year because despite the improvement in oil prices.
How could a country with this huge oil production and reserves, end up almost bankrupt? Could it have been possible to build a proper infrastructure out of the huge oil revenue in the past and diversifying that revenue? Or was this an inevitable result because of the nature of the country and its administration?
Some introductory facts
People fail to understand Saudi economy properly because they view it as an average capitalist economy. This is not so. It is important to imagine the massive secrecy encircling all affairs in the kingdom. Many financial institutions have to rely on official figures, which cannot be double-checked. In addition to releasing deceptive figures, the Saudi government sometimes does not release figures at all. For example the actual expenditure and revenue figures in the period between 1989 and 1995 have never been released. The government never publishes or releases figures about internal debt. In the last few years the government has given only a few details regarding the budget and avoided mentioning anything about expenditure on defence and other sensitive sections.
The Roots of the Economic Crisis
The Saudi government always tries to blame the Gulf crisis and oil prices for the economic disaster. But is that the case?
Regarding the Gulf crisis, Saudi Arabia might have spent $50 billion during the conflict, but has gained double that amount during the few years following the war by mopping up the Iraqi quota in OPEC.
The argument about oil prices is a false one because Saudi Arabia has sold oil at reasonably high prices over the last 25 years. Indeed the total oil revenue during those years is well above $1.7 trillion.
The total revenue in those 25 years from oil and other sources could well be in the range of $2 trillion. That translates to an average annual revenue of $80 billion.
The government justifies its expenditure by talking about building the incredible infrastructure. The real status of this infrastructure is far removed from that massive expenditure. To be more precise, this infrastructure consists of the following: one orphan railway between Riyadh and Dhahran, a very deficient highway network, a telephone system with capacity 1/20th of the capacity in Europe per person, an electricity service covering hardly 60% of the countrys population and with massive lingering problems, an education system with 80% of schools with unmaintained, rented buildings owing 5 years rent and a health system completely deficient at its primary level. The real expenditure on this infrastructure as we estimate could hardly exceed $300 billion.
The economic story in Arabia has witnessed flagrant corruption among members of the ruling family, phenomenal wastefulness, not to mention huge and unjustified arms purchases inflated by commissions and kickbacks. This wastefulness and mismanagement coincided with the collapse of oil prices, leading to a huge budget deficit which continued to increase year after year, in spite of attempts to mitigate it by drawing on reserves and overseas assets.