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Saudi Arabia: Economic Policy after the 1986 Oil-Price Crash
Country Study > Chapter 3 > The Economy > Economic Policy and the Structure of the Economy > Economic Policy Making > Economic Policy after the 1986 Oil-Price Crash

ECONOMIC POLICY AFTER THE 1986 OIL-PRICE CRASH


The general thrust of Saudi economic policy underwent a fundamental change after the oil price crash of 1986. The serious depletion of foreign assets, combined with the extensive decline in oil revenues, necessitated a revised economic policy. The depreciation of the United States dollar on international financial markets also hurt Saudi purchasing power abroad. The kingdom's external terms of trade deteriorated rapidly because oil exports were largely denominated in United States dollars, and the bulk of Saudi imports came from countries whose currencies were appreciating relative to the United States dollar.

Reappraisal of the development program became necessary. The most urgent task was shoring up government finances, yet domestic constraints allowed only a few options, especially in terms of raising nonoil revenues. Imposing an income tax, for example, was out of the question partly because of its political dangers in a country where it was an unknown procedure likely to raise questions of income distribution and taxation without representation. Also an income tax appeared impractical because the bureaucratic difficulties involved in collection would be more expensive than the intake would justify. King Fahd's shortlived idea of taxing foreign workers' income was retracted after a public outcry. The government froze some current account spending and cut capital spending, partly by delaying projects and also by canceling some programs. The was informed that subsidies of private sector vast capital expenditures had ended for the present, and, whereas certain major projects would be completed, the governments' emphasis would shift to improving the efficiency and maintenance of its public assets. In addition, major defense contracts would include a provision whereby foreign equipment and service contractors would be required to allocate 35 percent of the cost of their projects or services for industrial investments in Saudi Arabia.

Data as of December 1992




Last Updated: December 1992


Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for Saudi Arabia was first published in 1992. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on Factba.se.

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