Relatively weak credit flows have seemingly not constrained private investment growth. Data from MEED Projects put the total value of contract awards for projects underway over the January-mid-September period at just over $68 billion, around twice the value recorded in the same period of 2009.

Banks have in general terms been happy to lend to these types of projects, though sponsors have also had to draw on additional sources of funding.

Public sector investment also shows no sign of abating. MEED data put the total value of public sector contract awards for live projects in the nonoil sector at over $100 billion for the January-September period, up from $37 billion in the corresponding period of 2009. Indeed, public sector contract awards in the past three and a half months have alone exceeded $70 billion. Power and water projects have dominated, though health, education and transport infrastructure projects have also featured heavily, the Samba report said.

The Kingdom unveiled the Ninth Five Year Development Plan in mid-August, covering the 2010-14 period. This projects spending of SR1.4 trillion ($386 billion) over the five-year period, which is around 67 percent higher than programmed spending under the 2005-09 plan. Much of this will be directed toward civil infrastructure-especially education, which receives just over half the total allocation. Another key area is housing, in which the country has a deficit variously put at between 500,000-1 million units. The new plan increases the funds available for municipal and housing services by 53 percent, though at SR20 billion, or $5.3 billion a year, this can only really be viewed as an adjunct to a broader private sector push to build new homes, particularly at the lower end of the income scale.
 
Inflation

Consumer prices have risen sharply in recent months, with the cost of living index (CLI) in August 6.1 percent higher than a year ago, compared to a January rate of 4.1 percent.

The report said inflation in Saudi Arabia is driven by three main factors: Housing shortages, food prices and trading partners' inflation.

The report said rental inflation, meanwhile, is largely driven by expansion in the nonoil economy. The lack of marginal supply means that demand for additional expatriate workers is quickly registered in higher rents. On a year-on-year basis, rental inflation has been trending downward since the top of the previous economic cycle in mid-2008. However, there are signs that the 12-month rate is stabilizing-at a rate of almost 9 percent. The number and scale of public sector projects should see expatriate demand pick up significantly in the final four months of this year and into 2011, and with limited additions to supply, rental inflation may well begin to increase as we move into 2011.

By contrast, the outlook for trading partners' inflation is largely benign. The global economy is expanding again, but the pace is slow and excess capacity is large, with unemployment in many OECD countries at or over 10 percent. Global growth is expected to gather pace in 2011, but inflation likely to remain modest in most of the OECD.

The bank said in its report that inflation will ease a little from its current highs, and should average around 5.4 percent this year. The rate might well tick up slightly to around 5.7 percent in 2011 as the impact of higher rents is offset to some degree by softer food prices.

The Samba report said new figures from the IMF (International Monetary Fund) show that the central government's 2009 fiscal deficit was 6.1 percent of GDP (SR86 billion), up from the authorities' earlier preliminary estimate of 3.2 percent of GDP. The deficit is the first since 2001 and the largest since 1999.

The Samba report said cause of the deficit was a steep decline in revenue, allied to a sharp surge in spending. The Fund puts total revenue at SR510 billion, a 54 percent decline on 2008. Oil revenue fell by 56 percent - a much larger fall than the 42 percent decline in oil export earnings - reflecting the fact that Saudi Aramco withheld a larger share of oil export earnings for its own investment needs, as it completed a multi-year program to raise oil production capacity to 12 million barrels/day. Thus, government oil revenue fell to just 71 percent of oil export revenue, down from 93 percent in 2008 and the lowest ratio since 2002.