RIYADH: Saudi Arabia said yesterday it had more than doubled its capital spending on development projects in the first quarter, awarding contracts worth SR40.6 billion to spur the nonoil sector. The Kingdom said late last year it would invest $400 billion in the coming five years mainly to build infrastructure.
“The value of projects approved by the Ministry of Finance in the first quarter was SR40.6 billion compared with around SR20 billion in the first quarter of 2008,” Finance Minister Ibrahim Al-Assaf said in a speech at a Euromoney conference in Riyadh.
He later clarified that he was referring to contracts awarded in the three-month period, but did not specify how much of the total went to private companies.
“The current expansion of investment expenditure which covers infrastructure, public services, education and health sectors will provide great trade and investment opportunities for the private sector,” Al-Assaf said.
Lauding the state intervention, John Sfakianakis, chief economist at Riyadh-based SABB bank, said: “The role of the state as an engine for growth is evident. The state is stepping up to the plate and is spending fast in an environment where banks and the private sector are risk averse. The gap created by the lack of private sector investments is being filled by the state.
“The challenge now is for the private sector to see that there is light at the end of the tunnel. Obviously had the state not spent the money the economy would now be in recession. Confidence could begin to pick up as the fundamentals look strong and the equity market is feeding into the positive climate.”
Saudi Arabia derives almost 88 percent of state revenues from exports of crude and has tried to reduce its reliance on volatile oil prices, which swung as high as $147 a barrel in 2008 before slumping to the mid-$30 range earlier this year.
“Our economy is still exposed to the vagaries of the oil market so that our growth is much more volatile than in the advanced economies, which are highly diversified,” said Muhammad Al-Jasser, governor of the Saudi Arabian Monetary Agency (SAMA).
“The government is projecting a budget deficit as a cushion against any slowdown in the private sector,” he said at the conference.
The Kingdom amassed enormous surpluses during a six-year rally in oil prices. SAMA holds foreign assets of SR1.54 trillion.
Al-Jasser yesterday blamed an ideology of self-regulation in the banking sector for the global economic crisis and called for comprehensive policing of banks.
“The current crisis has shown beyond any doubt that self-regulation is no regulation, just as self-recommendation is no recommendation,” Al-Jasser said.
“Some major advanced economies had ... an ideological belief that markets are self-regulating and self-repairing,” he said.
“It is high time that we dropped the ideologies and theoretical constructs that led us astray and enacted .... comprehensive regulation to prevent the excesses that were the root cause of the problem we are in today,” he said.
He credited tough regulation with the stable position of Saudi banks even as those elsewhere had stumbled if not failed. “While we supported decontrol, we never followed the push for banking deregulation too far,” he said.
— With input from agencies