FISCAL TRANSPARENCY REPORT FOR SAUDI ARABIA

UNCLAS SECTION 01 OF 02 RIYADH 000573

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EEB/IFB/OMAFOR ASNOW AND RFIGUEROA
STATE FOR NEA/RA FOR JPALLARES AND JSCOVITCH

E.O. 12958 N/A
TAGS: ECON EAID PREL SA

SUBJECT: FISCAL TRANSPARENCY REPORT FOR SAUDI ARABIA

REF: STATE 16737

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Summary
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1. (U) Saudi Arabia's annual budget is publicized through
government sources, analyses by local banks, and the local media.
Officially-released budget data is timely, but not highly-detailed.
Most information is limited to broad sectoral allocations.
Officially-available information is typically posted on official
government websites of the Ministry of Finance and SAMA, the central
bank. National newspapers provide coverage of the budget, tending
to highlight education and health spending of interest to the Saudi
public. More current information is available in Arabic than
English. The Saudi Basic Law and Council of Ministers' Law provide
the legal foundation for budgetary disclosure and final budgetary
approval by the government.

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Official Sources of Information on the Budget
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2. (U) The Minister of Finance (MOF) has responsibility for
drafting and announcing the annual Saudi budget. Upon its
announcement, the MOF issues a public statement, which is published
on the MOF website, at www.mof.gov.sa. His press release typically
includes commentary on the previous year's budget implementation,
highlights of appropriations for the forthcoming fiscal year, and an
overview of recent economic developments. The MOF also publishes
very general budget appropriations by sector on its website.
Substantially more current information is available in Arabic than
English on the MOF website (3-4 years more current). The MOF
statement regarding the budget is also typically summarized and
published on the Royal Saudi Embassy in Washington DC at
www.saudiembassy.net; the Saudi Embassy also publishes additional
information on royal decrees which are pertinent to the composite
budget picture.


3. (U) More detailed budget information is available through the
Saudi Arabian Monetary Agency (SAMA),the central bank, at
www.sama.gov.sa. In particular, SAMA publishes an Annual Report
which covers the state of the Saudi and world economy, the banking
sector, banking supervision, public finance, capital markets, cost
of living, and key developments across various sectors, including
petroleum


4. (U) The Public Finance portion of the annual SAMA report
specifically addresses the annual budget. The SAMA report outlines
budget allocations by sector (e.g., human resource development,
municipal services, defense and security). Budget figures are not
broken down by sub-category. Allocations for individual ministries
are not broken out, but appear to be subsumed under these sectoral
allocations. Allocations to specific national institutions,
"semi-autonomous institutions," e.g., the Saudi Ports Authority,
King Saud University, the Royal Commission of Yanbu and Jubail, are
also outlined.


5. (U) The SAMA report also offers details on budget projections
versus actual revenues and expenditures for a three-year
retrospective period, and tracks percentages of oil revenue versus
non-oil revenue. (Oil has typically accounted for about 90% of
government revenue during the recent period of high oil revenues.)
The SAMA annual report also tracks other useful data, such as
current and capital expenditures, and the ratio of budget surplus to
GDP.


6. (U) Note: Mission finds that utility and timeliness of
information provided by the Ministry of Economy and Planning's
Central Department of Statistics typically lags that of data
provided by SAMA and the MOF. End note.

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Press Publicizes the Budget
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7. (U) During the annual budget publication period, local press
publicizes the budget figures in both Arabic and English, and in the
broadcast and print media. Al-Riyadh and other national newspapers
provide coverage of the budget, tending to highlight education and
health spending, areas of significant interest to the Saudi public.

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Growing Private Research Capability
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RIYADH 00000573 002 OF 002



8. (U) In recent years, banking institutions such as the Saudi
Arabian British Bank (SABB),Riyadh Bank, Samba Bank, and a new
class of Saudi-licensed investment banks, such as Jadwa Investments
and JP Morgan, have refined their research capabilities, and now
publish monthly analyses for their clients and the economic
community. During the recent budget cycle, these banks provided
well-researched analyses of the budget for their clients, with more
detailed and current information than that available through public
sources. Bank analyses of the budget are also disseminated via
independent organizations such as SURIS, the Saudi-U.S. Relations
Information Service, at http://www.saudi-us-relations.org.

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Laws Governing the Saudi Budget
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9. (U) Articles 72-78 of the Saudi Basic Law of Government contain
statutory provisions for the disclosure of budget revenues and
expenditures. The Basic Law stipulates that projections for the
following year's budget revenues and expenditures should be
announced during the last month of the fiscal year. Expenditures
must be in accordance with budget allocations. The Law also defines
the fiscal year, which runs from December to December on the
Gregorian calendar. The Ministry of Finance (the "competent body")
must prepare a statement of account of the year's budget at the
conclusion of the fiscal year for submission to the King.


10. (U) Articles 25-28 of the Council of Ministers' Law stipulate
that the Council of Ministers study and approve the state budget
upon submission. After approval by the Council of Ministers, the
King also approves the budget. A royal decree is necessary to
increase state budget allocations. A royal decree can also alter
the budget and specify how unanticipated budget surpluses are
allocated.


11. (U) Saudi Arabia observes International Monetary Fund-endorsed
standards and codes in the following areas:

--Banking Supervision (June 5, 2006)
--Monetary and Financial Policy Transparency (June 5, 2006)
--Payments Systems (June 5, 2006)

All were published as part of the Financial System Stability
Assessment. (http://www.imf.org/external/np/rosc/rosc.asp )

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USG Technical Assistance on Budgets
Long Since Wrapped Up
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12. (U) The USG had wide-ranging programs to assist the Ministry
of Finance and SAMA from the early 1970s to the early 1990s through
the U.S. Department of the Treasury-administered Joint Economic
Commission of Riyadh (JECOR) program. At its peak, more than 300
American advisors resided in Saudi Arabia to assist the SAG to
design a modern and efficient finance ministry and central bank.
These programs were wrapped up in the early 1990s when both
governments concluded the SAG had developed the ability to manage
its own fiscal and monetary affairs.

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Comment
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13. (SBU) Generally, economists in the region believe, and we
concur, that the SAG is exercising substantially more fiscal
prudence during this oil boom than it did during the previous oil
boom of the 1970s, when off-budget spending flourished unchecked.
Saudi budget figures are promptly released, widely-publicized, and
broadly discussed, but are not highly specific. They provide few
grounds for citizens to question a specific allocation, simply
because publicly-available figures are too generalized to identify
specific programs, or even budgets for specific ministries.
Additionally, large numbers of royal family members exact support
from government coffers, a patronage-based system of government
continues, and funds are flowing freely to modernize key government
sectors. These factors ensure that the published government budget
figures are probably not the full and final word on what the SAG is
actually spending.


FRAKER