RIYADH, Jan 28: In its 38th annual report, the Saudi Arabian Monetary Agency (SAMA) has emphasized the need of tackling the kingdom’s huge public debt, saying it would have an adverse effect on the country’s development and investment projects.

The report, presented to the Saudi monarch King Fahd, has urged the government to allocate budget surplus for repayment the country’s staggering public debts. The kingdom’s public debts reached $173 billion at the end of 2002.

To tackle the public debt, the report stressed upon the need to balance the budget through cuts in public spending and accord priority to capital investments. “The government must restrict its spending to budget allocations and use any surplus to repay part of the public debt,” SAMA Governor emphasized in the report

“Our economic challenges stem from modest growth rates, over-dependence on oil revenues and high population growth rates,” he told the king, adding that diversification was necessary to reduce the impact of fluctuating oil prices on the domestic economy.

The SAMA report covers the main developments of the Saudi economy in 2001 and parts of 2002.

The kingdom, with a current production of more than eight million barrels a day, generates more than 80 per cent of its national income from oil.

Due to surging oil prices, the kingdom’s revenue surged to $54.4 billion in 2002, 30 per cent above the projections made in the budget, but actual spending also exceeded allocations by 11 per cent to hit $60 billion from a projected $53.9 billion.

The 2003 budget projects a $10.4 billion deficit with expenditures estimated at $55.7 billion and revenues at $45.3 billion.

Harvard professor Richard Vietor told the Jeddah Economic Forum last week that the Saudi economy must grow more than 7.3 per cent annually for the next 25 years in order to catch up with developed nations, compared to the average growth rate of 1.8 per cent during the 1990s with an unemployment rate exceeding 15 per cent.

SAMA Governor said the state must encourage the private sector to play an active role and run public services on a commercial footing. Saudi Arabia late last year opened up 20 vital sectors for privatization with both local and foreign investors. But it has not yet set out detailed plans for deregulation.

He warned against rising unemployment and called for greater efforts to avoid its economic and social impact.

Riyadh has managed a budget surplus only once since 1982 with $6.1 billion in 2000 when oil prices increased sharply. Growth rates in real terms were 0.74 per cent last year, 1.2 per cent in 2001 and 4.9 per cent in 2000.

SAMA Governor Al-Sayyari said the monetary and banking sectors continued to grow in 2001 and 2002 and bank deposits increased by 16.8 per cent, while net foreign assets of banks increased by 32.1 per cent.

For the third consecutive year, the local stock market continued its good performance leaving a positive impact on the monetary, banking and financial sectors.

The governor said the recent economic measures by the government aimed at diversifying sources of income, broadening the production base and enhancing the role of the private sector in the development process as well as mobilizing local and foreign savings for investment in the productive and service sectors.

He called for the removal of all obstacles to the machinery of free enterprise, the proper use of available resources as well as greater efforts to mobilize domestic savings so as to make them conform to growing investment requirements.

He also stressed the importance of developing curricula and training programmes in accordance with labour market requirements.