Saudi economic outlook brighter, but reform slows down

Prospects for the Saudi economy in 2002 have improved thanks to the better than expected oil price.

Brad Bourland, chief economist at the Saudi American Bank, now predicts 0.2% growth in GDP compared with his more pessimistic earlier forecast of a 2% fall in GDP for 2002. The projected budget deficit is also down from $12 billion to $5 billion.

He points to low interest rates and a consumer boom fueling the economy. Saudis have also not been traveling so much since September 11th and have been spending their money at home.

But in his August bulletin Mr. Bourland says that there is a risk to liquidity driven growth in 2003. For economic growth to carry through there needs to be more progress on economic reform.

'So far in 2002, reform has been slow,' he says. 'Many widely discussed items of legislation have not emerged, such as a new tax code, new capital markets law, new labor law, and new insurance law, to name a few.

'In addition, the Gas initiative negotiations did not make significant progress in the first half of 2002. The initiative, which opens up the kingdom to foreign oil companies for domestic production and consumption of gas in three core ventures valued at $25 billion, would serve as an important growth driver in 2003 and beyond'.

Mr. Bourland also notes that no tangible progress has been made towards Saudi membership of the World Trade Organization this year, and that foreign direct investment has become a tougher sell since September 11. Only the privatization of Saudi Telcom by the end of the year remains on the economic reform programme, and that sale will be open only to Saudis.