Saudi Arabia is anticipating another big surge in income this year from increased oil production at higher prices but is planning to invest the money rather than spend it.
In fact, the government, already earning more money than it can put to use, has adopted a policy of restraints on spending in an effort to curb domestic inflation.
Nobody seems to know just how much money the government will take in this year because of uncertainty about how much oil will be exported.But it is possible, according to available figures and the estimates of several analysts, that the surplus of revenue over expenditure could reach $17 billion. Most of it, authoritative sources say, is to be deposited in western banks or invested in short term securities of western nations, including U.S. Treasury obligations.
This policy, Saudi and western sources say, increases the West's vulnerability to economic pressure from Saudi Arabia but also reinforces the Saudis' desire to minimize inflation in the West that could jeopardize the value or the security of their holdings.
"Spending will not increase but revenue will," Deputy Finance Minister Mansour Turki said in an interview. "All of the new revenue will got to investment outside."
He said there are "no useful estimates" of how much money will be coming in, but whatever it is will be "invested for future years."
In the past three years, soaring oil revenues have outstripped the absorptive capacity of backward, thinly populated country with an unsophisticated economic structure and an acute shortage of skilled manpower.
The result was a spectacular inflation that affected not only individual consumers but the government itself, which was finding major projects in its five-year $142 billion development program costing far more than anticipated.
To combat this trend, according to the recently published annual report of the Saudi Arabian Monetary Agency, the country's central bank, "the government has decided to regulate its outlays so as to slow down the rate of monetary expansion" and close a "significant inflationary gap which has led to a marked rise in prices."
In practice that has meant attempts to renegotiate some development contract to bring down prices, deferral of some others and a realignment of priorities to emphasize port and highway construction, making it possible for the imported goods on which the country depends to be brought in quicker and cheaper.
For the current Saudi fiscal year, which ends June 17, the natilnal budget projects revenues of 101.2 billion riyals, or $28.6 billion, almost all of it from oil exports. But that was calculated before the December conference of the Organization of Petroleum Exporting Countries.
There Saudi Arabia, the world's leading oil exporter, raised its oil prices for this year by five per cent, while eleven other producers set an increase of 15 per cent. The Saudis have said they will allow their production to rise above last year's average of 8.5 million barrels a day to meet the demand for their relatively cheaper crude.
Both Turki and the oil minister, Sheikh Ahmed Zaki Yamani said they are unable to predict what the new production level will be or for how long it will be sustained.
In any case, official sources agreed, whatever additional revenues come in will not be spent on capital projects or social services such as health or education this year. Government spending was already lagging behind appropriations, according to the monetary agency report. It shows that in the fiscal year that ended last summer, the government appropriated $31.3 billion, of which $21 billion was for capital projects under the five-year plan that is intended to transform Saudi Arabia into a modern industrialized nation.
But only $21.9 billion was actually spent, of which $12.6 billion went into the capital program. The result, according to the monetary agency report, was that about $17 billion a year has been going into the agency's "foreign assets". This year's budget appropriates the same amount, and the actual outlay is not expected to be much greater. Thus there was already an expected revenue surplus even before the OPEC meeting.
The minister of commerce, Soliman Solaim, said in an interview that in the year and a half since the massive development plan was adopted "we have become more aware of the problems of development." He said the country found its transportation and communications systems, and its manpower, simply unable to perform the tasks being required of them.
"In the present fiscal year, seven months so far," he said, "we have concentrated on these bottlenecks and put a curb on spending. In my opinion it was a crucial step."
There is a strong feeling among Saudi officials that a major reason for the inflation that was forcing up the cost of their industrialization and development programs was overcharging on the part of contractors who were taking advantage of the Saudis' wealth, their eagerness to build, and their shortage of sophisticated manpower.
"Last year we were really taken for a ride by the corporations of the world," said Deputy Planning Minister Faisal Bashir. He said contractors and suppliers had three sets of prices, "one for Saudi Arabia, one for the other OPEC countries and one for the rest of the world."