This is a well-to-do oil-based economy with strong government controls over major economic activities. Saudi Arabia has the largest reserves of petroleum in the world (26% of the proved total), ranks as the largest exporter of petroleum, and plays a leading role in OPEC. The petroleum sector accounts for roughly 75% of budget revenues, 40% of GDP, and 90% of export earnings. About 35% of GDP comes from the private sector. Roughly 4 million foreign workers play an important role in the Saudi economy, for example, in the oil and service sectors. The Saudi economy was severely hit by the large decline in world oil prices in 1998. GDP fell by nearly 11%; the budget deficit rose to $12.3 billion; and the current account recorded a $13 billion deficit-the first in three years. The government announced plans to implement large spending cuts in 1999 because of weak oil prices and will continue to call on greater private sector involvement in the economy. Shortages of water and rapid populationgrowth will constrain government efforts to increase self-sufficiency in agricultural products. GDP: purchasing power parity-$186 billion (approx.)

Capital Account

During the early 1980s, current account surpluses led to a sharp increase in foreign asset holdings. As a result, the capital account was dominated by outflows from both official institutions and the private sector. With the current account registering sizable deficits after 1983, the capital account has seen a reversal of these trends. A reduction of foreign assets was followed by a significant inflow of banking sector capital for the purchase of Saudi development bonds. The private sector only began repatriating capital after the Persian Gulf War ended. For much of the 1980s, private individuals and companies placed a substantial amount of funds overseas, a process that accelerated following the fall in oil prices in 1986 and as a result of the Iran-Iraq War. Increased confidence in the Saudi economy after the Persian Gulf War caused the return of these funds. The inflow of private capital in 1991 allowed SAMA to stabilize official foreign exchange holdings and spurred economic activity in the nonoil sector. Official asset flows constituted the bulk of current account financing, a process that became unsustainable following the massive depletions to pay for the Persian Gulf War costs. As a result, the government has engaged in significant commercial borrowing on the international markets and instructed some of its public enterprises (notably Saudi Aramco and Sabic) to do the same. With the expectation that Saudi Arabia will continue to run current account deficits during the foreseeable future, it is likely that the capital account will be dominated by debt flows and a good measure of private sector asset repatriation.