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Dilemmas of diversification

Saudi Arabia is making progress in restructuring its economy, but keeping up to speed a move away from dependence on oil itself rests on high oil prices and low interest rates.

High oil prices and low interest rates allows the Saudi government to press ahead with structural reforms.

HIGH OIL PRICES and low interest rates, the traditional preconditions for a strong performance from the Saudi Arabian economy, have enabled the government to press ahead with structural reforms without having to impose the spending cuts that in recent years would have been needed to keep the budget under control. With benchmark oil prices likely to remain nearer $30 a barrel than $20, well above the budgeted average figure of $17 a barrel, and production expected to stay at 9.5 million barrels a day, the revenue side of the budget looks certain to be buoyant this year.

"Oil revenue could be up as much as SR100 billion this year, bringing total oil revenue to SR230 billion and overall revenue to SR280 billion [$73.7 billion]," says Said Al-Shaikh, chief economist at National Commercial Bank.

If the government gets anywhere near its spending target of SR209 billion, the country could produce a rare surplus or balanced budget, something it managed in recent years only in 2001.

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