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Saudi Arabia: Financing a future beyond oil

While rising oil prices are easing Saudi Arabia's immediate economic problems - a deep budget deficit and depleted foreign reserves - the country needs to make structural changes, cut spending and create new jobs to reduce its dependence on volatile oil. Norman Peagam looks at the task confronting a new team of western-educated technocrats

Surging oil prices have provided much-needed relief to Saudi Arabia in recent months. The extra income has so far had little effect on economic growth, which remains sluggish, but it has eased financial pressure on the government, enabled the authorities to begin rebuilding foreign reserves and has bolstered confidence at a time of heightened uncertainty in the kingdom. Meanwhile, as if to demonstrate an undiminished appetite for Saudi risk, foreign banks are lining up to arrange financing for major projects, with several large transactions under discussion last month.

Saudi Arabia depends on oil exports for most of its foreign exchange earnings and close to 70% of its government revenues. With shipments of over 7 million barrels a day, each $1 increase in the price of oil generates at least another $2.5 billion a year in foreign exchange and SR7 billion to SR8 billion in government revenues (assuming that the national oil producer, Saudi Aramco, keeps some of the proceeds). In fact, the average export price of Saudi oil has climbed from a low of less than $11 a barrel in early 1994 to $16.21 during all of 1995 and $17.75

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