x Abu Dhabi, UAE Friday 21 July 2017

Saudi on track for 4.5% growth

Saudi Arabia's economy will expand 4.5 per cent this year as increased public expenditure paves the way for sustained economic recovery.

Saudi Arabia's economy will expand 4.5 per cent this year as increased public expenditure paves the way for sustained economic recovery, the US investment bank Goldman Sachs forecasts. Strong balance sheets in the banking and household sectors should also help to ensure that the kingdom outperforms most other GCC members, Goldman said in a research note.

"Saudi authorities currently have considerable fiscal resources at hand, which would enable them to support the economy and ensure that recovery is sustained through 2010," said Ahmet Akarli, an economist at Goldman Sachs. Saudi Arabia last month forecast a budget deficit for this year of 70 billion riyals (Dh68.65bn), its second consecutive budget shortfall, after the government approved the largest budget on record to stimulate economic growth and create employment. The finance ministry said it expected revenue of 470bn riyals and spending of 540bn riyals this year.

But Goldman Sachs expects a budget surplus for the current year of about 230bn riyals, with revenue at 860bn riyals and outlays at 630bn riyals. The Saudi budget had been drawn up based on a low oil price of about US$45 per barrel, the bank said. Oil is now selling for more than $80 a barrel. Public expenditure could approach 35 per cent of GDP this year, a smaller share than last year, but higher than the shares for the two years prior to that, Goldman said.

"Clearly, Saudi Arabia, alongside the GCC's other hydrocarbon-heavy economy Qatar, is ideally positioned to benefit from the ongoing cyclical recovery in the global economy and outperform its peers in the Gulf region," said Mr Akarli. The impact of the global recession and a decline in oil prices from historic highs meant economic growth in the world's largest economy last year slowed to 2.5 per cent from 4.5 per cent in 2008. The IMF has forecast growth of 4 per cent in Saudi Arabia for this year.

Meanwhile, the Saudi Arabian Monetary Agency governor Mohammed al Jasser on Monday reiterated the country's commitment to the riyal's peg to the US dollar during a meeting with business leaders. Mr al Jasser said the peg was in place for economic, not political, reasons. Five of the six GCC states peg their currencies to the dollar, which has remained weak over recent months stoking fears it could lead to a return of inflation in the region.

The Saudi government estimated that inflation was 4.4 per cent for the latest year. Fahad al Sultan, the secretary general of the Council of Saudi Chambers of Commerce and Industry, which hosted the meeting, asked Mr al Jasser to spur lending by banks, grant licences to foreign banks to create competition among lenders, and to issue inflation forecasts to help businesses plan better. Mr al Jasser said that it would be difficult to set an inflation target.

* with agencies