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WEEKLY NEWSLETTER
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Saudi Arabia
Index
The kingdom first established a planning agency in 1958 in
response to suggestions of International Monetary Fund
(IMF--see Glossary)
advisers. Planning was limited in the 1960s partly
because of Saudi financial constraints. The government
concentrated its limited funds on developing human resources, the
transportation system, and other infrastructure aspects. In 1965
planning was formalized in the Central Planning Organization, and
in the 1975 government reorganization it became the Ministry of
Planning. The Ministry of Finance and National Economy controlled
funding, however, and appeared to exert considerable influence
over plan implementation.
The First Development Plan, 1970-75, was drafted in the late
1960s and became effective on September 2, 1970, at the start of
the fiscal year
(FY--see Glossary).
Drafted during a period of
fiscal constraint, gross domestic product
(GDP--see Glossary) was
to increase by 9.8 percent per year (in constant prices) and show
the greatest increase in the nonoil sectors. Planned budget
allocations for the five years were US$9.2 billion, 45 percent of
which was to be spent on capital projects. Planned expenditures
were concentrated on defense, education, transportation, and
utilities. The unanticipated great expansion of crude oil
production, accompanied by large increases in revenues per
barrel, contributed to an exceptionally high rate of economic
growth, far beyond the planners' expectations. Nonoil real GDP
increased by 11.6 percent per year. As oil revenues grew, budget
allocations increased, totaling about US$27 billion for the five
years; actual budget expenditures amounted to US$21 billion.
The Second Development Plan, 1975-80, became effective on
July 9, 1975, at the start of the fiscal year. The plan contained
numerous social goals similar to those of the first plan, but it
also set forth goals that reflected decreased fiscal constraints.
Social goals included the introduction of free medical service,
free education and vocational training, interest-free loans and
subsidies for the purchase of homes, subsidized prices for
essential commodities, interest-free credit for people with
limited incomes, and extended social security benefits and
support for the needy. The plan also outlined several economic
goals and programs. GDP was to grow at an average rate of 10
percent a year. The nonoil sector's real planned rate of increase
was 13.3 percent per year; the oil sector's projected rate of
growth was 9.7 percent, although actual growth would depend on
world markets.
The government's planned expenditures totaled almost US$142
billion, plus additional private investment. As the size of oil
revenues became clearer during the plan's preparation, the final
investment figure was more than double the initial sum. The
planners acknowledged that spending of this magnitude would
create various problems, and they anticipated shortfalls in
actual spending. The largest share of planned government
expenditure, 23 percent, was allocated for continuing development
of ports, roads, and other infrastructure. Expansion of industry,
agriculture, and utilities received 19 percent of expenditures,
and defense and human resource development--essentially
education--each received 16 percent.
The planners were correct in anticipating problems. An
increasing flood of imports after 1972 proved too great for the
transportation system to handle. Ports, where ships waited for
four to five months to unload, were bottlenecks, but storage and
distribution from the ports were also inadequate. Government
spending contributed to the problems. By 1976 the clogged ports,
an acute housing shortage, skyrocketing construction costs, and a
growing manpower shortage caused prices to accelerate at what
some observers estimated at about 50 percent a year, although the
official cost-of-living index did not reflect these rates.
By 1977 second plan projects and ad hoc measures, such as the
government's spending less than planned, had relieved many
problem areas. Construction of additional ports, which
contributed to almost a fivefold increase in the number of ship
berths and paved roads, which increased by 63 percent to more
than 22,000 kilometers as well as other substantial additions to
the transportation and communications system occurred during the
second plan period. More than 200,000 housing units were built
over the five years.
Actual government expenditures during the second plan reached
US$200 billion, about 40 percent above the planned figure and
almost ten times the level of the first plan. As the
transportation bottlenecks were removed, annual budget
expenditures increased. Expenditures for salaries and other
operating costs increased more rapidly than expected, whereas
capital investments rose more slowly than budgeted. Over the
course of the plan, between 20 percent and 33 percent of national
income was devoted to investment. The private sector accounted
for 27 percent of fixed capital formation; government ministries
and agencies outside of the oil and gas sector invested 61
percent, and the public oil sector accounted for 12 percent. The
bulk of fixed capital formation was in construction.
Despite the massive increase in government expenditures,
overall real GDP growth at 9.2 percent average per annum was
below the planned 10 percent rate. This lower growth resulted
from a slower-than-anticipated growth in petroleum production, a
function of international market conditions and political
factors. Nonoil GDP grew at an average annual rate of 14.8
percent per year compared with a planned rate of 13.3 percent.
The producing components grew at 16.6 percent per year on average
(the plan rate was 13 percent), with most components outpacing
their targets. The following components all exceeded their
targets: agriculture, manufacturing, utilities, and services
(including trade, transport, and finance). Construction
paralleled the planned growth rate, and mining other than oil and
public sector projects did not meet targets.
The Third Development Plan, 1980-85, took effect May 15,
1980. The third plan featured a modest rise in government
expenditures reflecting stabilization of oil revenues and a
desire to avoid inflation and disruptions to society from an
unduly rapid pace of development. The planners expected
construction activity to decline, but unfinished projects were to
be completed and industry developed. Lower construction levels
were expected to require only a small increase in the number of
foreign workers. However, requirements for highly skilled workers
and technicians, Saudi and foreign, to operate and maintain
plants and equipment were expected to require shifts in the
composition of the work force.
Total planned government civilian development expenditures
during the third plan amounted to US$213 billion, plus an
additional US$25 billion for administrative and subsidy costs.
Third plan expenditures were categorized differently, making
comparisons with the second plan difficult. Civilian development
expenditures planned for 1980-85 were US$79 billion for the
economy, primarily industry (37 percent of the total in the third
plan; 25 percent in the second plan), US$76 billion for
infrastructure (36 percent in the third plan; 50 percent in the
second plan), US$39 billion for human resource development (19
percent in the third plan; 16 percent in the second plan), and
US$18 billion for social development (close to 9 percent in both
plans).
The third plan coincided with the sharp downturn in Saudi oil
production. The oil sector's output fell on average 14.2 percent
per annum. As a result, during the five years of the plan the
average annual real GDP growth rate declined 1.5 percent compared
with a planned annual increase of 1.3 percent. The principal
factors behind the continued positive rates of growth in the
nonoil sector (6.4 percent on average per annum) were the
relatively few cutbacks in government expenditures and the
continuation of major infrastructure and industrial projects
despite declining oil revenues. The nonoil manufacturing sector
and utilities expanded at 12.4 percent and 18.6 percent,
respectively, but at annual growth rates well below their
targets. The construction sector contracted but only at half the
rate planned. The agricultural sector grew rapidly, surging to
8.1 percent per annum. The service sector maintained its momentum
during the third plan, with trade and government services leading
the way. The transportation and finance subsectors, however, fell
well below their targets.
The Fourth Development Plan, 1985-90, budgeted total
government outlays at SR1 trillion (for value of the
riyal--see Glossary)
or almost US$267 billion, of which about US$150 billion
was budgeted for civilian development spending. Most cuts were to
come from reduced expenditures on infrastructure and a shift to
developing economic and human resources. Concern for preserving
the government's new investments was reflected in increased
budgeted spending on operations and maintenance. The plan also
emphasized stimulating private sector investment and increasing
economic integration with members of the GCC
(see Collective Security under the Gulf Cooperation Council
, ch. 5).
During the period of the fourth plan, oil revenues plummeted
following the oil-price crash of 1986. Overall real rates of GDP
growth averaged a positive 1.4 percent per annum, far below the 4
percent programmed. The revival in crude oil output from the low
levels of 1986, however, boosted oil sector growth rates to 3.6
percent per annum. The sharp decline in external income caused
lower rates of output expansion in the producing sectors.
Construction and other mining sector growth rates fell by 8.5 and
1.9 percent, respectively. Other manufacturing continued to grow
modestly at 1.1 percent per annum, but well below the 15.5
percent target. Trade, transport, and finance reflected the
financial setbacks in the government's program with annual
average production declines. Two surprises helped to offset the
depressed growth rates: agriculture, which had shown steadily
higher rates of output growth in the second and third plan, rose
by 13.4 percent per annum on average during the fourth plan,
nearly double its planned rate, and the utilities sector's
ability to surpass its planned target of 5 percent per annum.
Constrained resources shaped the Fifth Development Plan,
1990-95, with committed funds for the civilian program falling by
nearly 30 percent to approximately US$105.4 billion for the
period. The bulk of the cuts were in government investment in
economic enterprises, transportation, and communications. Human
resources development, health and social services, and
municipality and housing all maintained their fourth-plan levels.
Overall, the fifth plan called for consolidating the gains in
infrastructure and social services of the previous twenty years
and emphasized further economic diversification. The principal
means for achieving this goal was expanding the productive base
of the economy by encouraging private sector investment in
agriculture and light manufacturing. The private sector was
allowed to purchase shares in the larger industrial complexes and
utilities. For example, Sabic may be further privatized as well
as some downstream refining assets. In addition, there was
greater emphasis on financial sector reform and development
through the establishment of joint stock companies and a stock
market to trade shares and other financial instruments. Another
objective of the plan was greater government efficiency in social
and economic services.
Fifth-plan targets envisaged a 3.2 percent per annum growth
rate. Oil sector output was expected to increase 2.2 percent per
annum, while nonoil sector growth-rate targets were 3.6 percent.
Agriculture, other manufacturing, utilities, and finance were to
pace the economy while other sectors would show only modest
growth rates of 2 percent to 4 percent per annum.
Data as of December 1992
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