Oil cut dampens growth
Posted: 26 February 2007
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Saudi Arabia ’s decision to cut oil production in line with an OPEC agreement to prop up sagging crude prices in late 2006 has stifled growth in its domestic economy, according to a Saudi bank study.
But the surge in its income largely widened its financial surpluses in 2006 and the approval of its highest ever budget for 2007 is expected to spur growth, said the study by the National Commercial Bank.
“Crude oil production cuts put a damper on real GDP growth rate, which decelerated to 4.2% in 2006, down from 6.6% in 2005,” said NCB, the biggest commercial bank in Saudi Arabia .
But it noted that the surge in crude prices last year boosted Saudi Arabia ’s income to its highest level and pushed its fiscal surplus to GDP ratio jumped to a record 20.5% in 2006.
The current account surplus, which is partially a reflection of public savings, stood at $95 billion in 2006, nearly 27.5% of the estimated GDP.
“High average crude oil prices in 2006 were instrumental in fuelling the twin surpluses. Despite the recent correction in crude oil prices and the recent cuts in production levels, average Saudi Light spot crude oil price in 2006 was 22% higher than average 2005 prices. Accordingly, fiscal revenues soared to an all-time-high of SR655 billion, or 50% of estimated GDP,” the NCB said. |
