JEDDAH, 10 January 2008 — The surge in oil prices would provide a fillip to an already booming Saudi economy, which received an extra boost under the Kingdom budget for 2008.
In Samba’s latest report on Saudi Arabia’s new budget and last year’s performance, a copy of which was sent to Arab News yesterday, the bank said the 2008 budget amplifies the trends evident in the 2007 outturn, namely a pronounced increase in capital spending in conjunction with current spending restraint. A small surplus of SR40 billion ($10.6 billion; 2.5 percent of GDP) is projected, equivalent to only 22 percent of the 2007 surplus as indicative of the authorities’ conservative oil price assumptions.
The economy is set for a year of vigorous expansion in 2008, the Samba report said. Oil output is expected to rebound as OPEC relaxes production constraints, and with global oil prices expected to retain their upward trajectory, the country’s fiscal and external accounts will remain in large surplus.
Private investment in an array of megaprojects is expected to continue unabated, while public investment in basic infrastructure is also likely to be stepped up.
However, the report said “public current spending will likely remain restrained, but private consumption growth should be supported by the dynamism of the non-oil private sector, a recovering stock market, and enhanced financial intermediation.” It added that inflation is expected to remain above historical norms, reflecting higher global food prices and a tight local housing market.
However, burgeoning competition should help to dampen price growth of many goods and services. The report stressed the fact that the Saudi authorities are continuing to push ahead with a comprehensive set of reforms, aimed at boosting private investment and productivity, creating jobs and improving infrastructure.
The broad goal is to make the Kingdom the Gulf’s industrial hub, supported by a thriving services sector, it said.
As such, the operating environment for local and foreign investors has become far more liberal and permissive over the past five years, as reflected in Saudi Arabia’s rapid rise up the rankings of the World Bank’s annual survey on doing business which placed the Kingdom at 23 in the global rankings, “making it easily the most hospitable Arab country for investors.”
It scores particularly well on property registration and trading across borders, the Samba report further said.
The most notable improvement over the previous year was in starting a business, reflecting the government’s success in establishing “one stop shop” procedures for foreign and domestic investors.
“The improvements have come during a sustained period of high oil prices,” it said, adding that such move “is encouraging and suggests that momentum can be maintained over the medium term.”
Samba also forecast that the global oil market would remain tight and prices to stay high. Potentially softer US demand is likely to be offset by robust growth from China, India and the Middle East itself.
On the supply side, most OPEC members are producing at or near full capacity, with the exception of Saudi Arabia, the report said, while non-OPEC supply growth is also forecast to remain weak. Refining capacity is set to remain tight in 2008, and with a variety of geopolitical tensions likely to continue simmering, the report forecast Saudi crude to average around $77/barrel.