JEDDAH: Saudi Arabia’s current account surplus, because of high oil export revenues, is expected to reach an all-time high of SR517.5 billion ($138 billion) this year compared to SR356.25 billion ($95 billion) in 2007. According to the National Commercial Bank’s (NCB’s) Saudi Economic Perspectives report, July 2008, which was released recently, the Kingdom’s oil export revenues are expected to increase by 26 percent to a new record of around SR971.25 billion ($259 billion) in 2008. Non-oil exports are also expected to grow at a slightly slower pace of around 8 percent to SR112.50 billion ($30 billion). Nevertheless, total exports are forecast at around SR1.08 trillion ($289 billion) in 2008, compared to SR873.75 billion ($233 billion) in the previous year.

Due to robust domestic demand and higher global prices for food, raw materials and capital goods this year, imports are expected to grow by 11 percent to SR345 billion ($92 billion) in 2008. This is the largest in recent years.

The economy’s robust external position will be reflected in higher net foreign assets this year. In 2007, these assets grew by 30 percent to SR1.17 trillion ($312 billion), and had reached SR1.37 trillion ($365 billion) by May 2008.

Higher oil revenues will also lift the budget surplus this year. The budget surplus is expected to be around SR565 billion in 2008, by far, larger than the SR40 billion that was released in the 2008 government budget. This is largely due to higher oil revenues, which are expected to reach SR997 billion, while non-oil revenues are forecasted at SR75 billion in 2008. On the expenditure side, SR410 billion has been budgeted in 2008, out of which 40 percent are allocated to infrastructure and capital projects.

However, the government will most likely exceed budgeted expenditures by an average of 13-15 percent to reach around SR507 billion.

The government’s inflation alleviation package, which includes a public sector pay rise and direct subsidies on foodstuffs, building materials, and other consumer goods will probably be one factor for the government’s overspending this year, the NCB report said.

Saudi Arabia’s real GDP growth is forecasted to accelerate to 5.1 percent this year in line with the rebound in crude oil output, while private investment in the non-oil sectors of the economy is expected to gather pace. The oil sector remains the core of economic activity in Saudi Arabia, providing the financial underpinning for government expenditure plans and broader economic confidence. In real terms, the contribution of this sector has slowed markedly as Saudi Arabia cut crude oil production in recent years. But with higher crude oil output and investment in production capacity, real oil GDP is set to increase by around 5.6 percent this year, providing a significantly positive contribution to overall growth.

According to the NCB forecast, the Kingdom’s real non-oil GDP to increase by around 4.8 percent in 2008.

Investment expenditure will be a key driver of Saudi Arabia’s growth in 2008. In 2007, nominal gross investment expenditure grew 22.8 percent, mainly driven by the growth in government investment expenditure. Although higher levels of investment will feed into inflation in the short-run, it will ease various supply bottlenecks within the economy over the longer run.

The Kingdom is on the verge of an unparalleled construction boom. Projects in excess of SR1.7 trillion ($460 billion) are currently under way, all of which have significant construction components.

The NCB report said strategic projects, such as economic cities and industrial zones, oil & gas, petrochemicals, mining & minerals, transportation and utilities, have all been designed to leverage the Kingdom’s comparative advantages; a low cost energy producer and a strategic geographical location to expand the non-oil economy, specifically the non-oil private sector.

Public-private partnerships (PPP) are rapidly forming, with the government providing seed capital for projects initiation, while the private sector focuses on finance and execution. “This new dynamism not only ensures the economic viability of the selected projects, but also broadens the non-oil private sector base, while reducing the fiscal burden on the government,” Said A. Al-Shaikh, NCB chief economist, said in the report.

In the current phase of the investment plan, the government is building a competitive advantage in five main industries: Oil, petrochemicals, fertilizers, aluminum and steel. Saudi Aramco, Saudi Basic Industries Corp. (SABIC), and Saudi Arabian Mining Co. (Maaden) will be spearheading government plans through joint ventures with local and foreign investors.

According to the NCB report, IPO (initial public offering) activity in Saudi Arabia is likely to be strong in 2008 due to soaring domestic liquidity, ongoing market liberalization reforms and thriving domestic demand. Since the beginning of the year, around SR22 billion have been raised through IPOs, compared with SR18 billion for the whole of 2007.