JEDDAH, 27 September 2007 — Saudi Arabia yesterday announced a record budget surplus of SR290 billion ($77.5 billion) for 2006 thanks to high crude oil prices, the Saudi Press Agency reported, quoting Hamad Al-Sayari, governor of the Saudi Arabian Monetary Agency (SAMA).

Presenting SAMA’s 43rd annual report to Custodian of the Two Holy Mosques King Abdullah during a ceremony at Al-Salam Palace on Tuesday night, Sayari said the national economy had achieved an excellent growth rate of 4.3 percent in 2006 for the fourth consecutive year.

The Kingdom achieved the surplus of SR290 billion despite the record public spending of about SR393 billion ($105 billion), which went largely to development projects and the repayment of some public debt.

King Abdullah expressed satisfaction over the SAMA report and commended the agency’s efforts in drawing and executing the Kingdom’s monetary policies. Prince Muqrin, chief of intelligence, Finance Minister Dr. Ibrahim Al-Assaf, and other senior officials attended the ceremony.

Saudi Arabia generally bases its budget estimates on oil prices well below market levels, which explains the vast difference between the forecasts and the final figures. For 2007, it has projected a surplus of just $5.3 billion, while oil prices this year have topped $80 a barrel.

Sayari said the Kingdom has no plan to revaluate the dollar-pegged riyal. “We are not considering any change,” he told reporters, quashing speculation it might strengthen its currency that rose to a 21-year high after it held back from matching last week’s US interest rate cut.

“The dollar is main currency for the Kingdom’s exports as they are priced in dollars. Payments are also done in dollars. Many countries to which we export are linked with dollar in one way or another,” the SAMA chief explained.

He said the Kingdom’s monetary policy was directed to the needs of the domestic economy. “It is not necessary for us to follow a cut in interest rate, especially when there is high liquidity…We think exchange rate stability and transparency are important for investors,” he added.

The SAMA chief also said the balance of payments was in the black for more than $99 billion. Inflation was 2.2 percent in 2006 and has risen further this year, reaching 3.8 percent in July. He attributed the skyrocketing prices of essential commodities to world economic growth and increasing demand.

During 2006, the private sector achieved a growth rate of 6.4 percent, the highest in 25 years, while the public sector grew by 6.1 percent, which is the highest in nine years, Sayari told the king. He attributed the economic growth to increasing domestic and foreign investments in various sectors.

Dr. Mohamed Ramady, economics and finance professor at King Fahd University of Petroleum and Minerals, said the budget surplus for 2006 was expected and would have considerable impact on the economy. “The emphasis has now switched to a qualitative upgrade of the Saudi capital stock — whether in projects or human skills and education — and this will bring long-term benefits, after some years of budgetary pressure, fiscal deficits, and concentration on consumption expenditure,” he told Arab News.

“The larger-than-budgeted 2006 expenditure of SR393 billion compared to a budgeted amount of SR355 billion, was also expected due to the launch of the new mega city projects and defense commitments. This higher level of public expenditure will be witnessed in the 2007 fiscal year, driven by the same expenditure factors, with the forecast for another surplus of around SR150 billion, but this could be higher if current oil prices hold and if a US recession does not take bite,” Ramady said.

He said the healthy current account balance would help the Kingdom in building up its foreign reserves and withstand speculative pressures on the Saudi riyal, despite strong SAMA denials of any impending riyal revaluation. “What is of some concern is the continuing rise in domestic price levels, although Saudi inflation is far below those of other booming Gulf economies. The issue is one of managing the excessive levels of money supply in both the private sector as well as government expenditures,” he said.

Ramady added: “The level of domestic government debt might not be reduced as significantly in 2007 as in 2006, to avoid a further injection of liquidity into the domestic banking sector. The higher level of Saudi interest rate differential compared to the dollar will make holding of government debt attractive to Saudi banks.”

Brad Bourland, chief economist and head of research of the Riyadh-based Jadwa Investment, said: “This is a revision upward of the size of the budget surplus announced in December 2006,” adding that “it demonstrates that the fiscal performance was even stronger than I thought.”

Meanwhile, the World Bank recognized Saudi Arabia as one of the world’s top reformers in its annual “Ease of Doing Business” report. Recent reforms in Saudi Arabia improved the Kingdom’s position from 38th to 23rd out of 178 countries in the World Bank rankings. The report ranks Saudi Arabia as the best place to do business in the entire Middle East and Arab world, ahead of Kuwait (40th) and the UAE (68th). The report also ranks Saudi Arabia ahead of advanced economies such as France (31st) and Austria (25th).