• Home
• /
• Local business

Saudi Arabia to Experience Slow Growth

In its ‘Saudi Economic Perspectives’ report for July 2009, the bank said that despite the perceived major risk over an extended global recession, the fiscal policy remains strongly expansionary in 2009.

Despite the projected decline in oil revenues, the Saudi government remains committed to increase spending and provide the much needed boost to domestic demand amid the global economic recession. The government budgeted SR475 billion for total expenditures in 2009, out of which
 SR225 billion has been allocated to capital expenditure.

The budget prioritises capital spending in key areas, like education, healthcare and infrastructure, which is consistent with the government’s objectives to create job opportunities and support economic growth and development in the medium-term. The government tends to overshoot the budget, and this is even more likely to happen this year to counter the impact of the global crisis. Saying that although budgeted expenditure is higher for 2009 than last year, it is around 7 per cent below what the government actually spent last year, it added, “We therefore estimate that actual expenditures will increase by around 10 per cent to SR563 billion in 2009.”

However, the bank noted that with lower oil revenues, the government will probably exercise some restraint in current expenditure to provide some fiscal room for capital expenditure.

“We estimate that current expenditure will increase by only 1 per cent, while capital expenditure is projected to increase by around 33 per cent over the actual levels in 2008. Outside of its budget plans, the government also announced that it will inject an estimated SR55 billion into specialised credit institutions. We believe this is positive given the limited access to foreign capital and currently tight domestic liquidity situation,” it said.

The report added that government investment expenditure will play a pivotal role in sustaining economic growth this year based on aggressive fiscal policy plans that emphasise capital expenditure; indirect fiscal liquidity injections to facilitate investments via specialised credit institutions and additional steps undertaken by the public investment fund, or PIF to provide funding for major infrastructure and industrial projects.

The report explained that on the expenditure side, investment and private consumption were the main sources of growth in recent years. “This was supported by a broad range of structural reforms to increase market openness, enhance competitiveness and diversify the economy base. Investment, both private and public, increased from about 25 per cent of GDP in 2007 to nearly 30 per cent of GDP in 2008,” it added.—habib@khaleejtimes.com