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Saudi economists welcomed Saturday a government decision to earmark nearly 11 billion dollars in windfall oil revenues for development projects while calling for the establishment of a reserve fund to safeguard against future fluctuations in world prices.
De facto ruler Crown Prince Abdullah bin Abdul Aziz confirmed Friday that the oil-rich kingdom would this fiscal year enjoy a large budget surplus given the "unexpected" massive surge in prices.
He said 41 billion riyals (10.9 billion dollars) of the anticipated surplus had been set aside for development projects while most of the rest is to be spent on repaying part of the public debt, which has reached 660 billion riyals (176 billion dollars).
"These allocations for development projects provide reassurance that the long-awaited increase in investment expenditure is happening now," Ihsan Buhulaiga told AFP.
The largest proportion of government spending has recently been directed at current rather than capital expenditure, he said.
"The kingdom has a developing economy but also possesses a number of aspects of a welfare state. This demands higher spending on development projects," added Buhulaiga.
But he also warned against the danger of volatile oil prices as the world's largest crude exporter enjoys a revenue windfall from record highs that last month touched 50 dollars a barrel.
Expecting this year's surplus to come in at around 130 billion riyals (34.7 billion dollars), Buhulaiga suggested allocating an initial payment of 30 billion riyals (eight billion dollars) into a "safety reserve fund to protect the budget against drops in oil revenues."
Saeed al-Sheikh, chief economist at the National Commercial Bank, said allocating a significant proportion of the surplus to development projects would help keep up with increased demand for infrastructure.
"There's a gap between supply and demand in services. Narrowing the gap between supply of water and electricity, and the actual demand is important," he said.
The injection of nine billion riyals (2.4 billion dollars) into the Real Estate Development Fund - announced by the crown prince - would help meet the demand for housing, especially "as 140,000 new families are formed annually," he added.
However, Sheikh also stressed the value of establishing a reserve fund, saying it would "provide a cushion against a fluctuation in oil prices."
Sheikh commended channelling a "substantial" part of the surplus into repaying the public debt, "particularly as it has reached a level equivalent to 90 percent of the GDP (gross domestic product)."
Reducing the all-domestic public debt would improve investment conditions while eliminating the danger of any devaluation of the Saudi riyal should oil prices fall.
"As an oil economy, investors fear that the government might resort to devaluing the riyal if oil prices drop" in order to increase oil receipts in local currency, Sheikh said.
The Saudi government had projected an eight-billion-dollar deficit for fiscal 2004. Total revenues were estimated at 53.3 billion dollars and expenditures at 61.3 billion dollars.
But some private forecasts put total revenues at nearly double the official estimates due to the surge in oil prices, and have projected a budget surplus as high as 35 billion dollars.
Saudi Arabia posted a 12-billion-dollar surplus in the 2003 fiscal year, the first non-deficit budget since 2000.

Copyright Agence France-Presse, 2004

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