RIYADH, 7 June — The privatization drive is to accelerate after the Supreme Economic Council approved a new economic strategy aimed at boosting the private sector and generating revenue to pay for the $168-billion public debt, economists said yesterday.
The strategy, approved on Tuesday by a council meeting chaired by Prince Abdullah, the regent, outlines sectors on offer, procedures of privatization and a timetable for transferring certain services to investors.
"I believe the strategy will accelerate the privatization process and will relieve the pressure on government finances," said Brad Bourland, chief economist of the Saudi American Bank (SAMBA).
Minister of Finance and National Economy Ibrahim Al-Assaf said on Wednesday that revenues from the sell-offs will be used to pay for the staggering public debt, which is entirely domestic and which was estimated at $168 billion at the end of last year.
Al-Assaf explained that the strategy defines methods of privatization in each sector and calls for selling government holdings in Saudi companies in accordance with a plan devised not to hurt the stock market.
"It reaffirms the government’s resolve at the topmost levels and re-emphasizes the importance it places on privatization," said Khan Zahid, chief economist and vice president of Riyad Bank.
"The decision will be positive for the Saudi economy in general, and for the private sector in particular," Zahid said.
"It will further encourage private and foreign investment, enable the government to reduce the budget deficit and provide employment and training for Saudis," he said.
A major move planned before year-end is the sale in public subscription of part of state-owned Saudi Telecom Co., which capitalized at $3.2 billion.
Consulting Center for Finance and Investment (CCFI), an independent Saudi think tank, said in its latest report that Riyadh service its debt to the tune of around $8 billion annually.
"Public debt has been growing at a rate of five percent of the gross domestic product (GDP) annually and accounts for 15 percent of the budget," said CCFI.
"As long as the government does not deal with the chronic budget deficits, the rate of economic growth will remain below the Kingdom’s actual potential," it added.
For most of the past two decades, Saudi Arabia maintained its position as the world’s leading oil producer and exporter, but managed to have a budget surplus only once, in 2000.
The Kingdom, which sits on one-fourth of the world’s proven oil reserves and has the fourth-largest gas reserves, is projecting a $12-billion deficit in the current 2002 fiscal year.
Privatization is seen as essential for the country’s reforms and to create jobs for hundreds of thousands of Saudi job seekers after the unemployment rate climbed to around 20 percent.
The SEC also approved a number of other privatization moves, including inviting the private sector into a multibillion-dollar railway project and water desalination plants.
Zahid believes privatization will cover power generation, energy services, certain non-core activities of oil giant Aramco, public hospitals, non-associated gas exploration and production and air transport.
Bourland said the national carrier Saudi Arabian Airlines, Saudi Telecom, and government holdings in hotels and real estate companies will be the first on the privatization list.
The Kingdom, which gets 75 percent of its income from oil, has in recent years launched an ambitious economic liberalization program and granted projects worth $11 billion to foreign investors in the past two years.
