Saudi Arabia should invest oil revenues in human resources

Saudi Arabia, which is reaping the benefits of high oil prices, should invest more in the development of its human resources, analysts say.
"Surplus will be channelled into reserve funds... but the government also should increase spending on the development of human resources," Saudi economist Ihsan Buhulaiga said.

The kingdom is expected to double its revenues of oil exports in 2004, resulting in a fiscal surplus of 112 bn riyals ($ 29.8 bn), according to forecasts by the Saudi financial group SAMBA. SAMBA forecast in July that the total estimated oil revenue of 200 bn riyals ($ 53.3 bn), which had been calculated on the basis of $ 19 per barrel, will instead reach 367 bn riyals ($ 97.87 bn).
But the Saudi government has a substantial public debt to service, in addition to extra spending related to the fight against terrorism.
"I expect that a substantial part of the surplus will go into repaying public debt... No doubt also that acts of terrorism have imposed extra expenditure on the government", said a member of the finance committee in the consultative (Shura) council, Usamah Al Kurdi.

Saudi public debt reached 630 bn riyals ($ 168 bn) in 2003, representing 80 % of gross domestic product, according to SAMBA. Although all Saudi debt is domestic the government "is keen to maintain its credibility" by not defaulting on repayments, Kurdi said.
"There should be a balance between investment needs and debt repayments", he added. Education and health spending reached 1 bn riyals ($ 266 mm) per week in 2003, said Buhulaiga, who is also a member of the consultative council. "This will continue to rise to match the increase in population... and to develop the skills of Saudis enabling them to find employment in a market still dependent on foreign workers", he added.

Saudi Arabia posted $ 12 bn surplus in the 2003 fiscal year, the first non-deficit budget since 2000.
"A safety reserve fund should be created to ensure stability in public revenues against fluctuation in oil prices,"Buhulaiga said. "This will spare the government resorting to borrowing in future years... we face a huge public debt because the government has been forced to borrow in the past 20 years" due to a drop in oil prices, he added. Kurdi said that "rebuilding the public reserve is indeed one of the government policies".

The boom in oil revenues comes amid attempts to diversify the Saudi economy and introduce privatisation. Although extra oil revenues ease fiscal pressure on the government, these are not expected "to weaken its resolve to continue with privatisation", said Kurdi.
"Privatisation is inevitable because the government has realised that there is a need for achieving high economic growth", Buhulaiga said. The Saudi government awarded a consortium led by United Arab Emirates’ Etisalat a second mobile phone license which topped the treasury coffers with 12.21 bn riyals ($ 3.25 bn). "The government has realised the importance of economic diversification, and privatisation is an essential part of it,"Buhulaiga added.

The Gulf kingdom has been enjoying the windfall of record-busting oil prices in excess of $ 45 a barrel.
Saudi Oil Minister Ali Al Naimi said his country was ready to increase oil output by 1.3 mm bpd "immediately" to cope with world demand and curb soaring prices.