RIYADH, Nov 30: Oil power Saudi Arabia has based its 2003 budget on a price of about $17.50 a barrel for its oil versus an actual value of $23.30 in 2002, keeping the kingdom’s conservative fiscal outlook, a report said on Saturday.

The world’s largest oil exporter passed on Wednesday a $55.7 billion budget for 2003 carrying a gap of 39 billion and announced an actual 2002 deficit of 21 billion, down from a projected 45 billion.

Saudi American Bank chief economist, Brad Bourland, said in the report that 2002 fiscal performance was solid due to higher-than-expected oil revenues and good private sector growth with no inflation.

Actual revenues of 204 billion riyals in 2002 exceeded expectations by 30 per cent and spending of 225 billion riyals was 11.4 per cent higher than budget.

Saudi Arabia, which relies on oil sales for about three quarters of its revenues, does not reveal what oil price it bases its budget on.

Bourland said the 2003 budget, consistent with past conservatism in oil price forecasts, allowed for a sustained and substantial decline from current oil price and output levels.

He reckoned the kingdom has factored in average oil output of about 7.5 million barrels per day (bpd) for 2003 versus actual production of roughly eight million bpd this year.

Projected spending restraint and conservative oil prices and revenues yield a 2003 budget with little growth, he said.

Spending and revenues in the new budget represent a decline from actual 2002 performance but are expected to exceed budget.

As spending needs continue to grow, we are increasingly concerned that Saudi Arabia faces years of very large deficits when the oil market suffers a downturn, Bourland said.

The past two years have been strong for oil prices, and still government deficits remain at about 10 per cent of the budget and three to five per cent of GDP (gross domestic product).

Government debt, nearly all owed domestically, is also on the rise, currently standing at slightly over $170 billion.

The government has been authorised to borrow to cover the 2003 deficit, but it was not clear if the loans would be sought locally or from foreign financiers.

Bourland said the government should not face difficulty in obtaining financing for the 2003 deficit. Should it all be financed with debt, then debt would rise to close to 100 per cent of 2002 GDP, he added.

Finance and Economy Minister Ibrahim al-Assaf said earlier this month that Saudi Arabia’s planned sale of stakes in big public firms would reduce its debt burden.

The Ministry of Finance and Economy said on Wednesday it expected the kingdom’s 2002 GDP at current prices to grow by 2.3 per cent to 694.6 billion riyals and by 0.74 per cent at fixed prices to 643.8 billion riyals.—Reuters