DUBAI: Saudi Arabia will spend over a fifth more than was projected in its budget this year, while a pick-up in lending will spur its economy to grow 4 percent in 2010, Banque Saudi Fransi (BSF) said in a research note.
This compares to an estimated 0.9 percent contraction in real gross domestic product this year, the first in ten years, the bank said on Thursday.
“Following a sharp downturn at the start of the year, bank lending is showing signs of picking up,” the report said.
“Private sector credit growth and improvements in foreign trade support these expectations and will enable a resumption of real GDP growth of 4 percent in 2010 according to our preliminary estimates.”
Saudi Arabia was likely to exceed government expenditure targets by more than 20 percent in 2009 to SR579 billion ($154.4 billion), the report said, as the Kingdom launches its stimulatory spending program.
Oil producers in the Gulf region have boosted spending this year to boost their economies in light of the global financial crisis, with Saudi Arabia, the biggest Arab economy, alone committing more than $400 billion to underpin growth.
“The Saudi government’s substantial $400-billion, five-year domestic spending program kicked into full force this year, supporting the oil exporter’s economy through the worst of global financial turmoil while playing a part in stabilizing a global economy suffering from deep recession,” the report said.
The recovery in crude prices could see Saudi Arabia post SR2.3 billion surplus this year, or at worst an easily financed budget deficit, the report said, compared to the Kingdom’s own projection of a SR65 billion deficit.
Crude prices tumbled from a record peak above $147 a barrel in July 2008 to just above $32 a barrel in December, before recovering to trade around $70 in August.
“If oil prices persist at around the $70 mark, a probable scenario, we expect Saudi Arabia to finish the year with a very small surplus,” the bank said.
The report also said that while Saudi Arabia’s reputation had been tarnished by the troubles of Saudi conglomerates Saad Group and Ahmad Hamad Algosaibi & Bros, which has sent shockwaves through the whole region, these had not had a substantial impact on the economy.
“The emergence of the Saad and Algosaibi debt default predicament has no doubt tainted the sturdy image of Saudi Arabia’s corporate image. Nonetheless, the macroeconomic and corporate landscapes remain healthy and we believe the overall effect of the troubles on inhibiting bank lending in the coming year will be somewhat lessened,” the report said.
Businesses in Saudi Arabia would likely come under pressure from local and international lenders to be more transparent, the Banque Saudi Fransi said.
