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Saudi Arabia
Economic Policy after the 1986 Oil-Price Crash
The general thrust of Saudi economic policy underwent a fundamental
change after the oil price crash of 1986. The serious depletion
of foreign assets, combined with the extensive decline in oil
revenues, necessitated a revised economic policy. The depreciation
of the United States dollar on international financial markets
also hurt Saudi purchasing power abroad. The kingdom's external
terms of trade deteriorated rapidly because oil exports were largely
denominated in United States dollars, and the bulk of Saudi imports
came from countries whose currencies were appreciating relative
to the United States dollar.
Reappraisal of the development program became necessary. The
most urgent task was shoring up government finances, yet domestic
constraints allowed only a few options, especially in terms of
raising nonoil revenues. Imposing an income tax, for example,
was out of the question partly because of its political dangers
in a country where it was an unknown procedure likely to raise
questions of income distribution and taxation without representation.
Also an income tax appeared impractical because the bureaucratic
difficulties involved in collection would be more expensive than
the intake would justify. King Fahd's shortlived idea of taxing
foreign workers' income was retracted after a public outcry. The
government froze some current account spending and cut capital
spending, partly by delaying projects and also by canceling some
programs. The was informed that subsidies of private sector vast
capital expenditures had ended for the present, and, whereas certain
major projects would be completed, the governments' emphasis would
shift to improving the efficiency and maintenance of its public
assets. In addition, major defense contracts would include a provision
whereby foreign equipment and service contractors would be required
to allocate 35 percent of the cost of their projects or services
for industrial investments in Saudi Arabia.
Data as of December 1992
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