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Saudi Arabia Table of Contents

Saudi Arabia

Current Account

During the first half of the 1980s, Saudi Arabia had substantial trade surpluses, but these were reduced in the period of low oil prices after 1986. After the Iraqi invasion of Kuwait and following the sharp increase in prices, the trade balance swelled to between US$23 billion and US$24 billion. In contrast, the services sector of the current account registered large deficits. Service receipts, consisting of freight and insurance connected with merchandise exports and investment income, fell in accordance with decreases in the volume of oil exports and the depletion of foreign assets. Service payments have been a major burden on the current account. Whereas freight, insurance, and tourism receipts remained stagnant or fell during the 1980s, government military equipment purchases and public and private transfers (both aid flows and workers' remittances) did not contract sufficiently to erase the services and transfers deficit. Between 1984 and 1988, oil revenue declines forced the authorities to restrict government purchases of military equipment, which helped cover the deficit on services. However, after 1989, particularly after Operation Desert Shield, this category, in addition to the outflow of workers' remittances, aggravated the services' deficit to levels not seen since the early 1980s. The services and transfers deficit rose from US$11.9 billion in 1988 to US$26.9 billion in 1990. As a result of these trade and services flows, the current account has remained persistently in deficit since 1986, although considerable progress was made up to 1988 in reducing the shortfall. Despite a sharply higher trade surplus in 1991, it was estimated that payments to foreign allies, greater arms purchases, and increases in remittances caused the current account deficit to balloon to US$24 billion in 1991. By 1992, with the normalization of the military situation, the current account deficit was estimated to return to levels more in line with the structural deficit of the economy.

Data as of December 1992