	economic spotlight saudi arabia reshapes economy higher world oil prices coupled with a new realism ushered in by austerity could lift saudi arabia s economy after five years of falling revenue and growing budget deficits bankers and diplomats said the months ahead will prove critical as the government attempts a balancing act between defending higher oil prices and fostering recovery through a bigger role for the private sector economists said oil earnings could recover this year to about billion dlrs and nominal gross domestic product could grow by about three pct the first rise since but the economists said this will be possible only if the organisation of petroleum exporting countries opec succeeds in defending world oil prices and if saudi arabia is not forced to curtail output for too long saudi arabia is now keeping production down to defend opec s newly established dlr a barrel benchmark price oil minister hisham nazer told reuters output is running at about three mln barrels per day bpd well down on saudi arabia s opec quota of mln set for the first half of king fahd has stamped his personal authority on opec s new found determination to defend prices in a move western diplomats believe underlines the kingdom s need to secure a stable source of income for its economy saudi arabia still the world s largest oil exporter is a hugely wealthy country but the past five years of declining revenue have taken their toll economists estimate gross domestic product fell pct last year and pct in oil revenue last year when prices briefly dipped below dlrs per barrel probably totalled no more than billion dlrs compared to a peak billion in austerity is still the watchword but saudi arabia will not be allowed to dip further into recession the saudis can afford to draw down reserves temporarily to offset the worst effects a diplomat said in the short term the kingdom can lessen the impact of lower oil revenues and a gaping budget deficit by drawing on foreign reserves still put at around billion dlrs but such a policy cannot be pursued indefinitely bankers and diplomats said it would amount to fiscal recklessness in the longer term it also increases the dominance of the public sector at a time when the government is publicly urging private enterprise to take over the lead role in the economy bankers and diplomats said the government is well aware of the risks attached to this policy but is determined to tough it out on the oil front even if that means a short term depletion of reserves the budget deficit is targetted at a huge billion riyals or pct of total outlay the budget explicitly recognises the need to draw down reserves while foreign borrowing has been ruled out commerce minister suleiman abdulaziz al salim told saudi businessmen this week the government had carefully considered the need to stimulate the economy when drawing up its budget plans late last year it therefore took the bold step of withdrawing more than billion riyals from its reserves and pumping it into the economy he said reserves were built up during the late s and early s when saudi arabia s breakneck pace of construction and tales of high spending became legendary the shrinking economy has wrought huge changes in the fabric of the kingdom s private sector where poor management had gone unpunished in the easy days of the oil boom modern techniques of cost control have been introduced markets expanded and outsized labour forces and inventories cut back the expatriate workforce has fallen sharply the number of new bankruptcies appears to be declining but saudi banks hit hard by non performing loans to the corporate sector have become highly selective in extending new credit government moves to encourage lending and investigate company complaints about late public sector contract payments could boost confidence but recession has slowed the nation s industrialisation program and discouraged foreign investment private wealth is still very high and banks report more and more cash being placed on deposit as saudi arabia attempts to shift the weight of economic development from the public to the private sector one of the biggest tasks will be to convince businessmen to channel personal savings into industrial projects within the kingdom and refrain from the temptation to invest abroad reuter 
