Does the economy rely too much on Saudi Arabian oil?

Saudi Arabia is the world's leading petroleum exporter, with the Saudi Arabian oil exports
fueling the Saudi economy. Oil accounts for more than 90 percent of exports, and nearly 75
percent of government revenues, facilitating the creation of a welfare state, which the
government has found difficult to fund during the periods of low oil prices.

Officially, Saudi Arabia has around 260 billion barrels of oil reserves, comprising of about 24
percent of the world's proven total petroleum reserves.

History

The combination of relatively high oil prices and exports led to a revenues windfall for Saudi
Arabia during 2004 and early 2005. For 2004 as a whole, Saudi Arabia earned around
US$116 billion in net oil export revenues, up 35 percent from 2003 revenue levels. Saudi
net oil export revenues are forecast to increase in 2005 and 2006, to US$150 billion and
US$154 billion, respectively, mainly due to higher oil prices.

The economy

Saudi Arabia, the Arab world’s largest economy, is drawing on foreign assets to fund a
US$400 billion spending program over five years to boost oil production capacity and
complete large development projects.

Yet is the economy to reliant on Saudi Arabian oil, saying that the oil industry is very
unstable due to the price of a barrel going up and down.

In a recent report, 'Saudi Arabia Economics: Unlocking the Kingdom's Potential', Morgan
Stanley's senior GCC economist, Mohamed Jaber, believes that the country's real output will
recover in 2010, catalyzed by higher oil production levels; stronger domestic demand on the
back of the government's expansionary fiscal and monetary stance; and a gradual
resumption of credit growth. As a result, Morgan Stanley expects Saudi Arabia's total output
to grow by 3.6 percent in 2010 and 4.7 percent in 2011.

"The near-term economic outlook for Saudi Arabia is positive. In addition to strong growth
in real overall output, we also project headline inflation to continue trending downward as
the tightness in the housing market is gradually eased over time. Based on our assumption
of higher oil prices over the near term, the country's fiscal and external balances are likely
to improve," said Jaber.

Despite the positivity of this report in terms of the economy, it does suggest that there are
significant challenges facing the Saudi economy in the near future, including a need to
diversify away from a continued dependence on a volatile oil sector and a relatively large
public sector for growth.

According to the report, another challenge to be faced is the need to address rising
unemployment levels if the country is to achieve its full economic potential. Saudi Arabia
possesses a young population, with close to 48 percent of Saudi nationals under the age of
20. Jaber believes that pressures in the labour market, where unemployment currently
stands at around 10 percent, may rise further as an estimated 500,000 - 600,000 new
graduates join the workforce over the next five years, AMEinfo states.

Present day
As the price of oil turns around, and high state spending returns, the world's top oil-
producing region is finding its feet again as the global credit crunch pushed Saudia Arabia
into a downturn earlier in the year. Yet it is still a concern that one economy relies so much
on oil, the 'black gold' so to speak.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ab_G.VR_AqS8&pos=7
http://www.dailystar.com.lb/article.asp?edition_id=10&categ_id=3&article_id=108222