Kingdom’s current account surplus to reach SR 438.75 billion this year

Saudi Arabia’s current account balance is expected to be in surplus in 2013, according to the National Commercial Bank (NCB) report.
Based on oil price and production assumptions, the bank expects oil export revenues to decline by 6.6 percent to a near record $ 325 billion. Meanwhile, nonoil exports are also expected to shrink be nearly 13.7 percent to $ 42 billion due to lower international prices for petrochemicals and other by-products that are oil related. There is a downside risk to projection that can arise from further deterioration in regional growth, especially that the Middle East's share of nonoil exports have taken a nose-dive from 54.6 percent in 2009 to 36.1 percent in 2012.
Additionally, the offsetting Chinese demand that materialized during the last two years, with the share of China rising from around 8 percent in 2009 to 13.0 percent in 2012, might be impacted by a softening economy. On aggregate, total exports are forecasted to rise to $ 367 billion in 2013, the second largest on record, compared with $ 397 billion in the previous year.
As for imports, they are expected to grow by 5.5 percent to $ 135 billion, which is a record value. This is largely due to robust domestic demand, as evident from the surge in the value of the newly opened Letters of Credit (LCs) that accelerated by 15.9 percent Y/Y in 2012 to a record SR 204 billion, supported by foodstuff and motor vehicles.
Accordingly, the bank expects the current account surplus to reach a significant $ 117 billion (SR 438.75 billion) this year, 16.1 percent relative to GDP, yet smaller than the $ 178.7 billion in 2012. The robust external position will reflect favorably on net foreign assets this year. In 2012, these assets grew by 21 percent to reach $ 648.5 billion by the end of December. Rising awareness of the gyrations embedded in oil prices has prompted the Shoura Council, in November, to discuss a proposal to set up a Sovereign National Fund. The fund proposed will professionally manage and invest budget surpluses to smooth economic cyclicality. Even though SAMA's (Saudi Arabian Monetary Agency’s) prudent strategy of seeking lower risk and higher liquidity assets at these turbulent times in the credit and money markets have served the country good, an active portfolio management will definitely require an independent body solely responsible for the enormity of handling more than SR 1.5 trillion in net foreign assets, barring foreign assets needed to cover the Saudi riyal.
Based on the MoF announcement, around SR 68.2 billion in 2013 will be disbursed by specialized credit institutions to finance industrial projects and to support social development, thus, complementing the surge in private credit growth that recorded 16.4 percent in 2012, the fastest pace since March 2009. A case in point is the $ 20 billion Sadara chemical project, whereby Public Investment Fund (PIF) and Saudi Industrial Development Fund (SIDF) are extending loans worth $ 1.8 billion. Accordingly, the government expectedly increased the capital and resources of the Real Estate Development Fund and Saudi Industrial Development Fund by more than SR 19.5 billion, as stated in 2013 budget.
The NCB report said by the end of October, the PIF had topped Tadawul's major shareholders with SR 290 billion distributed across 18 listed companies, reflecting its commitment in providing equity financing as well. In September, the Saudi Credit and Saving Bank has started the process of financing SMEs whose costs will range between SR 0.3 to 8 million.
Robust government finances, ample fiscal space, elevated foreign assets and a stable financial system boded well for the Kingdom's credit rating. In April and May, Fitch and Standard & Poor's affirmed the Kingdom's long-term rating at an investment grade AA- with a stable outlook and also maintained the short- term foreign currency issuer default rating at A-1+ and F1+, respectively. These decisions are obviously a confirmation of the strong government finances that have largely withstood oil price volatility and global uncertainties.