Saudi investment projects on course
Minister of Finance Ibrahim Al-Assaf, left, and SAMA Gov. Muhammad Al-Jasser at the opening ceremony of the Euromoney conference in Riyadh on Tuesday. (Reuters)
Published: May 19, 2010 13:26 Updated: May 19, 2010 13:40
RIYADH: Minister of Finance Ibrahim Al-Assaf pledged Tuesday the government's resolve to continue to implement its investment program despite the recent fall in oil prices.
"I am not worried right now about oil prices, and we will push through the development projects that we are committed to in an effort to stimulate growth and create additional job opportunities for Saudis," Al-Assaf told over 1,200 delegates, businessmen and financial executives at the 5th Euromoney conference here.
Oil prices bounced back from seven-month lows on Tuesday as the euro strengthened against the dollar. New York's main contract, light sweet crude for delivery in June, rallied $1.20 to $71.28 a barrel. London's Brent North Sea crude for July gained 29 cents to $75.39 in late afternoon trade.
Al-Assaf disclosed that the capital of Saudi Industrial Development Fund would be increased from SR20 billion to SR30 billion. "Two days ago Custodian of the Two Holy Mosques King Abdullah approved the plan to beef up the fund by giving SR10 billion."
Al-Assaf said investment spending in the Kingdom's 2010 budget was up 16 percent from 2009, which was itself up 36 percent from 2008. Expenditures on projects in 2009 totaled about SR180 billion, up 37 percent from 2008. In 2009, the Ministry of Finance approved 1,639 contracts (exceeding SR5 million) for a total of SR126.88 billion, up 28 percent from 2008.
The minister said the global economy faced risks, such as weakness in the public finances and high public debt ratio in a number of countries, especially the advanced countries. He said there were signs of a global economic recovery following the worst global crisis since the Great Depression in the 1930s. The international efforts to deal with the crisis, particularly the stimulus packages approved by the G20, of which Saudi Arabia is a member, have had a major effect in heading off the collapse of the global financial system.
"The appropriate economic policies pursued by the Saudi government in the past years, and the effects of the global crisis on the Saudi economy have been limited," Al-Assaf said.
Reacting to the minister's remarks, John Sfakianakis, chief economist at Banque Saudi Fransi, said: "Saudi Arabia has taken important steps since the mid-1980s to put in place the right regulatory framework and high bank capitalization and supervision so that the global financial system can draw important lessons. Saudi Arabia is among the healthiest in the G20. Whilst debt and exuberance have been anathema for the global economy, Saudi Arabia doesn't exhibit excesses and government debt is declining. High government spending continues, having important overall growth spillovers, which helped maintain positive growth in 2009 and rising growth in 2010.
SAMA (Saudi Arabian Monetary Agency) Gov. Muhammad Al-Jasser said at the conference that Saudi banks would resume "normal business" this year after difficult conditions following the global downturn, which forced local banks to increase provisions in 2009.
He said that Saudi Arabia had applied both micro and macro-prudential measures over many years, and by virtue of its conservatism, the financial and banking system had been spared the worst effects of the recent market turmoil.
Al-Jasser said that in Saudi Arabia, long-term FDI (foreign direct investment) is more pronounced due to attractive investment opportunities in the petrochemical sector, infrastructure and small-scale industries. Forex reserves accumulation is a function of oil receipts rather than volatile portfolio flows. Monetary policy has remained accommodative since late 2008, and monetary and credit conditions do not warrant a different course of action.
Requiring the banking system to hold more capital, on average, will not improve the resilience of the financial system as a whole unless there is also a better match of risk taking to risk capacity, Al-Jasser said.
Alain Papiasse, head of corporate and investment banking, BNP Paribas, said that after the financial crisis, there was need to review the "rules of the game"... and ensure that these new rules were not handicapping the economic recovery globally. It is therefore necessary to review the regulatory framework, whether from a prudential or accounting point of view in order to learn the lessons from this crisis. "We believe that greater financial solidarity must be accompanied by measures to ensure that banks remain capable of financing the economy," Papiasse said.
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