RIYADH, 13 May 2004 — Saudi Arabia expects economic growth close to last year’s 6.4 percent, on the back of high oil revenues, Finance Minister Dr. Ibrahim Al-Assaf said yesterday.
Al-Assaf told Reuters a wave of terrorist bombings and shootings had failed to dent the Kingdom’s robust economic expansion and said the government would use any budget surplus to reduce debt.
Asked if the attacks by supporters of Osama Bin Laden’s Al-Qaeda network had provoked capital outflows from the Kingdom, he replied: “Absolutely not. It has been the other way round, we have an increase in liquidity.” Al-Assaf added: “I expect positive growth this year... I’m optimistic it will be very close if not better than last year.”
He said Riyadh would remain cautious in its economic policy despite the revenue boost from oil prices and would stick to planned expenditure of SR230 billion this year.
Saudi Arabia’s Gross Domestic Product (GDP) grew 6.4 percent in real terms last year — the highest level in more than a decade — as the world’s biggest oil exporter enjoyed a surge in revenue from high oil production and prices.
Economists have forecast more modest growth this year but oil prices have continued to gain as consumers fret over supply levels and instability in oil-producing countries.
Al-Assaf said the government might increase planned spending on security to tackle attacks by terrorists but would otherwise devote increased revenues to reducing the Kingdom’s debt.
In the latest attacks, five Westerners and a National Guard officer were shot dead at a petrochemical site in the industrial city of Yanbu and at least six people were killed by a car bomb at a security headquarters in the capital Riyadh.
“We should obviously take into account developments that the government needs to cover, especially in the security area, but in general we need to stick to planned budget and expenditure,” Al-Assaf said.
“The priority is for reducing debt. Whatever we save will be absorbed by reduction in the stock of debt.” Economists estimate Saudi Arabia reduced its public debt by SR20 billion last year to around SR630 billion, or 80 percent of GDP. Al-Assaf said the attacks had not dampened the Saudi economy and said there were no signs of investors pulling out money because of security fears.
“One would expect some negative impact on the economy but we are seeing exactly the opposite,” he said, pointing to a sizzling stock market which has already risen 35 percent this year, on top of a 76 percent rise in 2003. Turnover since the start of the year was SR500 billion — close to the SR600 billion for the whole of last year, he said.
Saudi Arabia’s financial sector, including the insurance industry, banking and the stock market would be the “driving force” of the economy for the remainder of the year, with new insurance licenses expected to be issued in coming months.
Al-Assaf said a new commission to oversee implementation of last year’s capital markets law, a cornerstone of economic reform, would be appointed “within weeks”.
Economists have been waiting since November for the commission to be announced so the new law, which should liberalize and expand the Arab world’s biggest stock market, can come into effect.