JEDDAH: Experts expect the 2011 budget to be the largest in the history of the Kingdom because of the rise in oil prices, which is expected to reach $100 per barrel. They attributed the rise in oil prices to increased consumption in China and the United States, the severe cold weather in Europe and the fall in the exchange rate of the US dollar. They pointed out that there are other sources of income aside from oil that can contribute to increasing national income. This includes investments in precious metals such as gold, the transport industry, coastal investments and expansion in chemical industries. They stressed the importance of protecting inventions and converting this into an industry, as part of the country's development towards a knowledge economy. Muhammad Saad Al-Qarni, an economic analyst, said there is a close link between the state general budget spending and oil prices. “They are in direct proportion, meaning the public spending figure in the state budget increases with a rise in oil prices and decreases with a drop in oil prices.” Al-Qarni expects oil prices to continue to rise and sees the price to remain at $100 per barrel in the current period and in the near future. This is a fair price compared to the prices of commodities and services that have risen substantially over the past two decades. He attributed the rise in prices to many factors, including political and economic reasons. The rise in oil prices has come about because of the growing demand in China and other countries with huge unrestrained industrial economies. This is in addition to some countries coming out of the export market; lack of oil discoveries; the cost, risk and lack of alternative energy, particularly nuclear energy; the inability of oil-producing countries to increase production within a short period; and the fabricated speculation that has raised the oil price in a way that does not reflect the actual and real situation in the market. Al-Qarni said the drop in the exchange rate of the dollar exerts pressure on the final result, that is, real returns for the oil-exporting countries. He said the current oil production is sufficient and covers the market. He stressed that there is no pressing need for increased production at present even if it coincides with the winter season, which in the past, has had no great effect on increasing the demand in the consuming countries and hence raising prices. Al-Qarni said the most important non-oil resources in the Kingdom include the mining industry, especially gold. The transport industry was also important and needed to be expanded, in particular maritime and air transport because of low fuel costs. Investments are needed in the marine industry and fish farming, manufacturing of glass, and normal and religious tourism in the Kingdom. There also needed to be an expansion in the natural and stone industries, chemical industries, gas industry, and innovation and inventions, which was being neglected. “We have aspirations that these are converted to industries under the knowledge economy.” Issam Mustafa Khalifa, member of the Saudi Economic Society and chief marketing planning specialist, also expects the 2011 budget to be the largest in the history of the Kingdom because of the expected rise in oil prices in 2011 to over $100 per barrel. “It is expected that oil and non-oil revenues would reach SR620 billion and spending would rise to SR580 billion while the deficit will be in the region of SR40 billion.” He also expects the deficit in the 2010 budget to change into a surplus because of the rise in oil revenues as a result of the increase in oil prices. He expects the government public debt to drop to SR225 billion in 2010 from SR237 billion, representing 13.3 percent of Gross Domestic Product (GDP). “As regards the rise in oil prices, despite the existence of a balance between demand and supply in the market, the oil prices have exceeded the range of $75 to $85 a barrel. OPEC officials have talked about this and said it would reach $89 per barrel. This price rise is expected to continue during the coming year.” He attributed the rise in oil prices to the high consumption rates in China due to the growth of its strong economy, the cold wave in Europe, the rise in oil consumption in the US and the drop in the exchange rate of the dollar. He expects OPEC to announce that the appropriate price should be $90 per barrel because it will suit both producing and consuming countries, said Khalifa. “The contribution of the oil sector to GDP is 85 percent while the export of other commodities forms merely 15 percent of total exports. This percentage has been nearly stable for the past 20 years despite the difference in crude oil prices in the world markets throughout that period.” “From this standpoint, it becomes clear that our economy is still relying on crude oil [resulting in] the state general budget directly relying on crude oil. In other words, cash from the sale of oil is what moves the economic sectors.”
