PILING UP: Saudi’s foreign aid bill is mounting

PILING UP: Saudi’s foreign aid bill is mounting

Egypt Jordan, Bahrain, Oman and Yemen - the Arab spring has elicited a string of pledges of loans and grants from the oil-rich kingdom to its troubled, resource-poor neighbours.

May 28, 2012 5:37 by Reuters

Egypt Jordan, Bahrain, Oman and Yemen – the Arab spring has elicited a string of pledges of loans and grants from the oil-rich kingdom to its troubled, resource-poor neighbours.

Charity is a key tenet of Islam and the kingdom is an established donor. The Saudi Fund for Development supports infrastructure projects, predominantly across the Islamic world. The Saudi central bank reported that foreign aid totalled $3.7 billion or 0.8 percent of GDP in 2010. That’s roughly in line with the United Nations’ target.

The real cost of the foreign aid bill is likely to be much higher. That now includes bilateral pledges related to unrest that will come to more than $12 billion, assuming the Saudis contribute one quarter of the $20 billion package promised by Gulf countries to Oman and Bahrain. Outsiders have little knowledge about the timing and nature of such aid; economists treat Saudi’s helping hand as an off-balance sheet item.

Saudi’s expensive foreign policy probably isn’t too unpopular at home. The aid is a clear expression of Arab solidarity while also shoring up support for the region’s club of kings. And while GDP per capita is lower in Saudi than in other, less populous Gulf countries, the kingdom has pledged massive domestic spending that should be sufficient to deal with its own chronic housing shortage and help tackle high unemployment. At the current oil price, and with low debt, Saudi can afford to be generous with its wealth.

The recipients are more of a worry. Aid funnelled through the International Monetary Fund typically comes with conditions – a fiscal plan that is supposed to lead to financial self-sufficiency. Even if the bilateral aid to Egypt is meant to be temporary and funds for Bahrain and Oman are designed to boost vital capital spending, Saudi’s largesse could easily encourage poor fiscal discipline and, in turn, greater financial dependence.

With the kingdom’s ambitious desire to create a Gulf Union strongly opposed to Iran, Saudi could find that its mounting foreign largesse becomes tomorrow’s permanent liabilities.

CONTEXT NEWS

Saudi Arabia on May 20 pledged $3.3 billion in aid to neighbouring Yemen. The al Qaeda hit country has received refined oil products from the kingdom since June last year. Separately, the kingdom is finalising a $2.7 billion aid package for Egypt. After the transfer of $1 billion to Egypt’s central bank earlier this month, the Saudi package includes $500 million of support for development projects, $250 million for petroleum purchases, $200 million for small to medium size firms, and purchases of T-bonds.

Jordan received $1.4 billion last year from Saudi Arabia in the form of a direct cash budgetary grant. The country’s budget deficit forecast at 4.6 percent of GDP in 2012 allows for extra foreign aid. Officials say there has been no aid pledged from Saudi so far this year.

Last year, Gulf countries launched a $20 billion aid package for Bahrain and Oman to help upgrade housing and infrastructure over 10 years.

Saudi has a permanent seat at the International Monetary Fund alongside the United States, Japan, France, the UK, Germany, China and Russia.

(Editing by Edward Hadas and David Evans)