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Saudi Arabia
Five-Year Plans
The kingdom first established a planning agency in 1958 in response
to suggestions of International Monetary Fund (IMF--see Glossary)
advisers. Planning was limited in the 1960s partly because of
Saudi financial constraints. The government concentrated its limited
funds on developing human resources, the transportation system,
and other infrastructure aspects. In 1965 planning was formalized
in the Central Planning Organization, and in the 1975 government
reorganization it became the Ministry of Planning. The Ministry
of Finance and National Economy controlled funding, however, and
appeared to exert considerable influence over plan implementation.
The First Development Plan, 1970-75, was drafted in the late
1960s and became effective on September 2, 1970, at the start
of the fiscal year (FY--see Glossary). Drafted during a period
of fiscal constraint, gross domestic product (GDP--see Glossary)
was to increase by 9.8 percent per year (in constant prices) and
show the greatest increase in the nonoil sectors. Planned budget
allocations for the five years were US$9.2 billion, 45 percent
of which was to be spent on capital projects. Planned expenditures
were concentrated on defense, education, transportation, and utilities.
The unanticipated great expansion of crude oil production, accompanied
by large increases in revenues per barrel, contributed to an exceptionally
high rate of economic growth, far beyond the planners' expectations.
Nonoil real GDP increased by 11.6 percent per year. As oil revenues
grew, budget allocations increased, totaling about US$27 billion
for the five years; actual budget expenditures amounted to US$21
billion.
The Second Development Plan, 1975-80, became effective on July
9, 1975, at the start of the fiscal year. The plan contained numerous
social goals similar to those of the first plan, but it also set
forth goals that reflected decreased fiscal constraints. Social
goals included the introduction of free medical service, free
education and vocational training, interest-free loans and subsidies
for the purchase of homes, subsidized prices for essential commodities,
interest-free credit for people with limited incomes, and extended
social security benefits and support for the needy. The plan also
outlined several economic goals and programs. GDP was to grow
at an average rate of 10 percent a year. The nonoil sector's real
planned rate of increase was 13.3 percent per year; the oil sector's
projected rate of growth was 9.7 percent, although actual growth
would depend on world markets.
The government's planned expenditures totaled almost US$142 billion,
plus additional private investment. As the size of oil revenues
became clearer during the plan's preparation, the final investment
figure was more than double the initial sum. The planners acknowledged
that spending of this magnitude would create various problems,
and they anticipated shortfalls in actual spending. The largest
share of planned government expenditure, 23 percent, was allocated
for continuing development of ports, roads, and other infrastructure.
Expansion of industry, agriculture, and utilities received 19
percent of expenditures, and defense and human resource development--essentially
education--each received 16 percent.
The planners were correct in anticipating problems. An increasing
flood of imports after 1972 proved too great for the transportation
system to handle. Ports, where ships waited for four to five months
to unload, were bottlenecks, but storage and distribution from
the ports were also inadequate. Government spending contributed
to the problems. By 1976 the clogged ports, an acute housing shortage,
skyrocketing construction costs, and a growing manpower shortage
caused prices to accelerate at what some observers estimated at
about 50 percent a year, although the official cost-of-living
index did not reflect these rates.
By 1977 second plan projects and ad hoc measures, such as the
government's spending less than planned, had relieved many problem
areas. Construction of additional ports, which contributed to
almost a fivefold increase in the number of ship berths and paved
roads, which increased by 63 percent to more than 22,000 kilometers
as well as other substantial additions to the transportation and
communications system occurred during the second plan period.
More than 200,000 housing units were built over the five years.
Actual government expenditures during the second plan reached
US$200 billion, about 40 percent above the planned figure and
almost ten times the level of the first plan. As the transportation
bottlenecks were removed, annual budget expenditures increased.
Expenditures for salaries and other operating costs increased
more rapidly than expected, whereas capital investments rose more
slowly than budgeted. Over the course of the plan, between 20
percent and 33 percent of national income was devoted to investment.
The private sector accounted for 27 percent of fixed capital formation;
government ministries and agencies outside of the oil and gas
sector invested 61 percent, and the public oil sector accounted
for 12 percent. The bulk of fixed capital formation was in construction.
Despite the massive increase in government expenditures, overall
real GDP growth at 9.2 percent average per annum was below the
planned 10 percent rate. This lower growth resulted from a slower-than-anticipated
growth in petroleum production, a function of international market
conditions and political factors. Nonoil GDP grew at an average
annual rate of 14.8 percent per year compared with a planned rate
of 13.3 percent. The producing components grew at 16.6 percent
per year on average (the plan rate was 13 percent), with most
components outpacing their targets. The following components all
exceeded their targets: agriculture, manufacturing, utilities,
and services (including trade, transport, and finance). Construction
paralleled the planned growth rate, and mining other than oil
and public sector projects did not meet targets.
The Third Development Plan, 1980-85, took effect May 15, 1980.
The third plan featured a modest rise in government expenditures
reflecting stabilization of oil revenues and a desire to avoid
inflation and disruptions to society from an unduly rapid pace
of development. The planners expected construction activity to
decline, but unfinished projects were to be completed and industry
developed. Lower construction levels were expected to require
only a small increase in the number of foreign workers. However,
requirements for highly skilled workers and technicians, Saudi
and foreign, to operate and maintain plants and equipment were
expected to require shifts in the composition of the work force.
Total planned government civilian development expenditures during
the third plan amounted to US$213 billion, plus an additional
US$25 billion for administrative and subsidy costs. Third plan
expenditures were categorized differently, making comparisons
with the second plan difficult. Civilian development expenditures
planned for 1980-85 were US$79 billion for the economy, primarily
industry (37 percent of the total in the third plan; 25 percent
in the second plan), US$76 billion for infrastructure (36 percent
in the third plan; 50 percent in the second plan), US$39 billion
for human resource development (19 percent in the third plan;
16 percent in the second plan), and US$18 billion for social development
(close to 9 percent in both plans).
The third plan coincided with the sharp downturn in Saudi oil
production. The oil sector's output fell on average 14.2 percent
per annum. As a result, during the five years of the plan the
average annual real GDP growth rate declined 1.5 percent compared
with a planned annual increase of 1.3 percent. The principal factors
behind the continued positive rates of growth in the nonoil sector
(6.4 percent on average per annum) were the relatively few cutbacks
in government expenditures and the continuation of major infrastructure
and industrial projects despite declining oil revenues. The nonoil
manufacturing sector and utilities expanded at 12.4 percent and
18.6 percent, respectively, but at annual growth rates well below
their targets. The construction sector contracted but only at
half the rate planned. The agricultural sector grew rapidly, surging
to 8.1 percent per annum. The service sector maintained its momentum
during the third plan, with trade and government services leading
the way. The transportation and finance subsectors, however, fell
well below their targets.
The Fourth Development Plan, 1985-90, budgeted total government
outlays at SR1 trillion (for value of the riyal--see Glossary)
or almost US$267 billion, of which about US$150 billion was budgeted
for civilian development spending. Most cuts were to come from
reduced expenditures on infrastructure and a shift to developing
economic and human resources. Concern for preserving the government's
new investments was reflected in increased budgeted spending on
operations and maintenance. The plan also emphasized stimulating
private sector investment and increasing economic integration
with members of the GCC (see Collective Security under the Gulf
Cooperation Council , ch. 5).
During the period of the fourth plan, oil revenues plummeted
following the oil-price crash of 1986. Overall real rates of GDP
growth averaged a positive 1.4 percent per annum, far below the
4 percent programmed. The revival in crude oil output from the
low levels of 1986, however, boosted oil sector growth rates to
3.6 percent per annum. The sharp decline in external income caused
lower rates of output expansion in the producing sectors. Construction
and other mining sector growth rates fell by 8.5 and 1.9 percent,
respectively. Other manufacturing continued to grow modestly at
1.1 percent per annum, but well below the 15.5 percent target.
Trade, transport, and finance reflected the financial setbacks
in the government's program with annual average production declines.
Two surprises helped to offset the depressed growth rates: agriculture,
which had shown steadily higher rates of output growth in the
second and third plan, rose by 13.4 percent per annum on average
during the fourth plan, nearly double its planned rate, and the
utilities sector's ability to surpass its planned target of 5
percent per annum.
Constrained resources shaped the Fifth Development Plan, 1990-95,
with committed funds for the civilian program falling by nearly
30 percent to approximately US$105.4 billion for the period. The
bulk of the cuts were in government investment in economic enterprises,
transportation, and communications. Human resources development,
health and social services, and municipality and housing all maintained
their fourth-plan levels. Overall, the fifth plan called for consolidating
the gains in infrastructure and social services of the previous
twenty years and emphasized further economic diversification.
The principal means for achieving this goal was expanding the
productive base of the economy by encouraging private sector investment
in agriculture and light manufacturing. The private sector was
allowed to purchase shares in the larger industrial complexes
and utilities. For example, Sabic may be further privatized as
well as some downstream refining assets. In addition, there was
greater emphasis on financial sector reform and development through
the establishment of joint stock companies and a stock market
to trade shares and other financial instruments. Another objective
of the plan was greater government efficiency in social and economic
services.
Fifth-plan targets envisaged a 3.2 percent per annum growth rate.
Oil sector output was expected to increase 2.2 percent per annum,
while nonoil sector growth-rate targets were 3.6 percent. Agriculture,
other manufacturing, utilities, and finance were to pace the economy
while other sectors would show only modest growth rates of 2 percent
to 4 percent per annum.
Data as of December 1992
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