Deducing budgetary priorities in Saudi Arabia: The impact of defense expenditures on allocations to socio-economic programs

The 1990 Saudi budget, set at just over that for 1989, and the 1990-95 five year plan, with spending targets on the current price equivalent of five times the 1990 budgetary figure, indicate fairly clearly that Saudi Arabia’s days of priming the non-oil economy are essentially over, but that its commitment to price stability remains. The five year plan has proposed growth targets averaging 3.2 percent a year between 1990 and 1995, roughly in line with what might be expected to be the population growth rate. The oil sector is expected to grow at a real rate of 2.7 percent a year, but the oil and gas sector combined by only 2.2 percent. The domestic non-oil economy is expected to grow at 3.6 percent. The overall growth rate in the non-oil sectors is likely to improve when the contraction in government services has flattened out. The intention of the budget is to increase the already large human resources development. To meet this objective, reductions in funding must be made in most other sectors. However, these cuts have been minimized in the areas of defense, administration, health and social development. The local subsidies section of the budget has been kept unchanged largely for political reasons to reflect King Fahd’s promise to protect the living standards of low income Saudis. While the picture for human resources looks promising, what is the chance that allocations to this sector will begin to expand again? The purpose of this paper is to assess in some detail, based on past budgetary patterns, the manner in which the government tends to revise its actual budgetary expenditures in response to revenue developments during the fiscal year. Do expenditures on human resources vary systematically with unexpected changes in revenues? Does the human resource share of the budget expand or contract systematically with movements in any of the other major budgetary categories? Do defense expenditures come at the expense of social or economic (or both) budgetary allocations?