The worsening global financial conditions and the collapse of oil prices have put some strains on the Saudi economy. But because of economic reforms and investment boom of the previous years, Saudi Arabia is well positioned to weather the extreme economic and financial conditions. Economic fundamentals remain very strong.
As the year 2008 draws to a close, Saudi Arabia faces the daunting task of keeping its economic wheel moving as the world passes through an unprecedented financial crisis.
The budget for 2009, which was unveiled by Custodian of the Two Holy Mosques King Abdullah last week, is testimony to the government’s determination to push ahead with its massive investment program despite the drop in oil prices. Saudi Arabia has allocated a record SR225 billion ($60 billion) for new projects in the budget.
The Finance Ministry said the Kingdom was expected to make a record budget surplus of SR590 billion in 2008 with revenues projected at SR1.1 trillion and expenditure at SR510 billion. The budget surplus was 234 percent higher than last year’s total and more than double the previous record high of 2006.
Most of the surplus was used by the Saudi Arabian Monetary Agency (SAMA) to build up foreign assets. The government’s huge stock of net foreign assets stood at SR1.66 trillion at the end of October, according to the Riyadh-based Jadwa Investment.
Private sector played an important role in the current economic boom. Much of the SR2.25 trillion worth of projects currently under way or planned in the Kingdom are reliant on private sector funding.
In a recent interview with the Kuwaiti newspaper, Al-Seyassah, King Abdullah allayed fears of the Saudi people that they would be affected by the current global crisis. “Our economy is in a good shape. The global crisis, however, has slowed it down to some extent as a result of the unjustified panic,” the king said.
Inflation became a major challenge in 2008. The Kingdom’s inflation rate increased to a record high of 11.1 percent in July — the highest in at least 30 years. The raise was mainly driven by rents and food prices. It has since then receded.
The steep fall in oil prices is one of the clearest and most immediate impacts of the financial crisis on the Saudi economy, Jadwa said. Oil prices have dropped under $40 a barrel now after reaching a record high of $147 a barrel in July this year.
The Saudi stock market continued its slide this year with investors unnerved by the worldwide equity sell-off, global economic weakness, falling oil prices, and reverberations from the global credit squeeze, Samba Financial Group said in a report. The Tadawul All-Share Index (TASI) is down over 50 percent this year.