Saudi Arabia, hampered by shrinking oil revenues, said Wednesday that it is planning to borrow money to finance its 1988 budget.
It would be the first time in modern, oil-boom era history that the kingdom resorts to such a move, which could involve as much as 30 billion riyals, or $8 billion.
Saudi Arabia controls nearly a quarter of all the world’s known petroleum reserves.
In a broadcast speech, King Fahd told his countrymen that the huge oil revenues that flowed into Saudi Arabia during the oil price boom of the 1970s have been slashed by the declining world petroleum market.
He announced a 1988 budget of 141.2 billion riyals, or $37.7 billion, almost 17% less than the 1987 budget of 170 billion riyals. The government projects revenues of 105.3 billion riyals, or $28.1 billion.
Huge Reserves Dwindling
“The changes in the petroleum situation and the reduction in the country’s revenue to one-fifth of what it was a few years ago” led the government to seek ways to keep spending at a level “commensurate with continued national economic development and the preservation of the standard of utilities and services that have been established,” the king said.
The sprawling desert kingdom, which estimates its population at nearly 12 million, earned more than $100 billion a year at the oil boom’s peak, when it was pumping about 10 million barrels a day. A barrel is the equivalent of 42 gallons.
It built up financial reserves estimated at nearly $190 billion. But those have been slashed almost in half in recent years as the government dipped into its savings to finance vast development plans. Experts estimate that Saudi Arabia’s deficits have totaled about $13 billion annually since 1984. The new budget calls for drawing the equivalent of another $2.1 billion from reserves.
The budget statement issued by the official Saudi Press Agency said the government is authorized to borrow as much as 30 billion riyals, or $8 billion, by issuing bonds.
It is the first time the government has publicly said it would turn to the bond market. The budget did not specify whether the bonds would be offered internationally as well as on the local market.
Budget Cuts Announced
The Saudi announcement follows similar moves earlier this year by oil-rich Kuwait and other neighboring countries. They began to suffer budget deficits when the oil prices began to falter in the early 1980s.
The government also said it would raise duties on imports to protect local industries and raise revenues, although there was no estimate of tax and customs revenues in the statement Wednesday.
The king gave no indication what portion of revenue would come from oil and what would come from government fees. Oil industry experts estimate oil revenue for the current year at roughly 65.2 billion riyals, or $17.4 billion. The government, however, has not yet provided figures on the actual performance of the 1987 budget.
Although the government has cut subsidies and trimmed other expenses in the past year, the payroll has continued to grow as the kingdom hired most Saudi university graduates who needed jobs. But Fahd on Wednesday announced a freeze on hiring and promotions.
The king said that because of political instability in the region, spending on the military and internal security will be high, although he did not set a figure. More than a third of the 1987 budget was allotted to the military.
Fahd also indicated that the days of massive spending on roads, utilities, industries and agriculture were over.
The king said: “This task of consolidation has been completed to the fullest.”