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WEEKLY NEWSLETTER
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Saudi Arabia
Index
The general thrust of Saudi economic policy underwent a
fundamental change after the oil price crash of 1986. The serious
depletion of foreign assets, combined with the extensive decline
in oil revenues, necessitated a revised economic policy. The
depreciation of the United States dollar on international
financial markets also hurt Saudi purchasing power abroad. The
kingdom's external terms of trade deteriorated rapidly because
oil exports were largely denominated in United States dollars,
and the bulk of Saudi imports came from countries whose
currencies were appreciating relative to the United States
dollar.
Reappraisal of the development program became necessary. The
most urgent task was shoring up government finances, yet domestic
constraints allowed only a few options, especially in terms of
raising nonoil revenues. Imposing an income tax, for example, was
out of the question partly because of its political dangers in a
country where it was an unknown procedure likely to raise
questions of income distribution and taxation without
representation. Also an income tax appeared impractical because
the bureaucratic difficulties involved in collection would be
more expensive than the intake would justify. King Fahd's shortlived idea of taxing foreign workers' income was retracted after
a public outcry. The government froze some current account
spending and cut capital spending, partly by delaying projects
and also by canceling some programs. The was informed that
subsidies of private sector vast capital expenditures had ended
for the present, and, whereas certain major projects would be
completed, the governments' emphasis would shift to improving the
efficiency and maintenance of its public assets. In addition,
major defense contracts would include a provision whereby foreign
equipment and service contractors would be required to allocate
35 percent of the cost of their projects or services for
industrial investments in Saudi Arabia.
Data as of December 1992
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