RIYADH, 31 October 2007 — A structurally stronger economy, the transformation of the business environment and continued high oil prices are all factors that are contributing to continued growth within the Kingdom of Saudi Arabia, regional investment bank EFG-Hermes reported yesterday.
The report, entitled “Building on the Boom”, warns however of the continued dependence on the hydrocarbon sector.
Since the beginning of the decade, Saudi Arabia has undergone an unparalleled economic transformation, a trend that is set to continue largely due to that fact that Saudi Arabia has become structurally stronger.
“Nominal GDP in the Kingdom has almost doubled since the beginning of 2006 and the government has used part of its oil wealth to reduce debt levels to 28 percent in 2006 from 115 percent of GDP in 1999, as well as to build up net foreign assets (NFA),” said Monika Malik, senior economist at EFG-Hermes. “This move has created a substantial cushion to smooth out economic cycles and to stimulate the economy by increasing spending when oil prices are low. The reduced debt level, build-up of foreign reserves and the more prudent use of oil revenue have been central factors in the upgrade by rating agencies of Saudi Arabia’s sovereign outlook.”
According to the report, the growth outlook for 2007 and 2008 remains positive and the persistence of high oil prices will support expansionary government expenditure allowing for a greater proportion of oil revenue to filter to the domestic economy.
Non-oil GDP growth will remain robust until the end of the decade with an increase of 6.5 to 7.0 percent over the next two years. In addition, the country is also experiencing a transformation within the business sector. The government has advanced in its widespread reform program, which has centered on improving the investment environment.
Saudi Arabia became a member of the WTO at the end of 2005, which will continue to drive reform and increase economic transparency going forward. The government’s investment program, which is also facilitating private investment, is also a key tenet of reform agenda.