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Saudi Arabia
Foreign Assets and Liabilities
Publicly available information on Saudi Arabia's foreign assets
was scant. Newspaper accounts placed foreign assets held by SAMA
overseas at around US$100 billion during the early 1980s. These
assets have been substantially depleted to finance current account
deficits. A sizable portion has become nonperforming as Saudi
Arabia has been unable to recover loans to several countries,
notably Iraq. By the end of 1991, foreign assets of the government
were estimated at US$30 billion if nonperforming assets were excluded.
This amount was only sufficient for purposes of currency cover,
a statutory requirement of SAMA. Saudi commercial banks held an
additional US$30 billion to US$35 billion in foreign assets, some
of which was depleted in the late 1980s to finance government
bond purchases and to cover domestic liquidity. Estimates of private
sector assets were even more difficult to aggregate; however,
based on Bank of International Settlements data and newspaper
accounts, the figure could be as large as US$100 billion.
Until 1991 Saudi Arabia's foreign liabilities were restricted
to foreign lines of credit necessary to conduct international
trade and financing operations held by domestic commercial banks.
The negative alliance of payments caused the government to engage
in a sizable borrowing program on international capital markets
in 1991, however, including a loan from Morgan Bank of approximately
US$4.5 billion. Saudi Aramco was reported to have borrowed US$2
billion to finance parts of its oil sector development program,
and several Sabic corporations borrowed for new industrial investments.
Further borrowings were likely. At the end of 1991, total medium-long
term debt, consisting largely of government debt, was estimated
at US$9 billion and was expected to grow to US$12 billion by the
end of 1992. Short-term, trade-related debt was estimated at US$11
billion at the end of 1991.
In summary, during the period of high oil prices beginning in
the 1970s, the government transformed the kingdom into a modern
economy with few vestiges of the pre-oil period remaining. Concurrently,
the standard of living for the average Saudi grew markedly, thanks
to such factors as government-provided social services and a plethora
of subsidies. Despite these achievements, what struck most observers
was the fragile base that supported this standard of living. Government
oil revenues, supplemented by private reserves accumulated during
the oil boom years, accounted for much of the gross domestic product.
Whereas diversification of the economy has been an objective for
most of the five-year development plans since the 1970s, oil still
dominated and was likely to continue to do so. Oils predominance
was apparent in 1992 as the government was allocating large sums
to expand crude oil production capacity to still higher levels
in anticipation of growing international demand.
The large oil sector did not mean that the kingdom had not invested
heavily in industrialization: in 1992 it ranked among the major
industrial economies in the Middle East. But most Saudi industries
were petroleum-based, in the public sector, and heavily dependent
on subventions from the government budget. The private sector
has been reluctant to establish domestic processing plants, and
those created have been heavily subsidized. Similarly, modern,
water-intensive, and importdependent agriculture has come at a
huge cost to the government.
Despite higher oil capacity and demand for Saudi Arabian crude
oil and petroleum products, the kingdom will continue to face
tight budgetary restrictions during the 1990s. The challenge facing
the government in the aftermath of the Persian Gulf War, with
all its costs, was maintaining the high Saudi standard of living
while continuing to diversify the economy. With financial reserves
at the bare minimum levels necessary to keep international confidence,
this challenge was even more difficult.
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With the decline in oil prices in 1986, the number of books on
Saudi Arabia and the Persian Gulf region markedly declined. There
are, however, several excellent early monographs on the five-year
plans and early development programs but few recent books that
deal with the problems of deficits and stabilizing the economy.
Two of the most up-to-date books on the Saudi economy are Robert
E. Looney's Economic Development in Saudi Arabia and
H. Askari's and B. Dastmaltschi's Saudi Arabia's Economy:
Oil and the Search For Economic Development. The latter is
highly recommended because of its detailed analysis of the development
plans and real costs associated with them. Tim Niblock's State,
Society, and Economy in Saudi Arabia provides an excellent
background to the economic development effort and contains several
insightful studies on the economic and social constraints facing
the country. A particularly good book on the private sector is
Michael Field's The Merchants. For regular coverage of
the kingdom's economy three sources are recommended: Middle
East Economic Digest, Middle East Economic Survey,
and Financial Times. A plethora of oil journals, especially
Petroleum Intelligence Weekly, are available to keep
up with developments in the Saudi oil sector. The United States
Embassy in Riyadh also produces a comprehensive annual summary
of developments in the kingdom's oil sector. (For further information
and complete citations, see Bibliography.)
Data as of December 1992
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