Speaking to reporters on the occasion of the presentation of SAMA's 46th annual report to Custodian of the Two Holy Mosques King Abdullah, Al-Jasser said the Saudi economy did not shrink in 2009 despite a 53 percent fall in oil revenues, considered the backbone of the Kingdom's economy, in addition to a 83 percent decline in the country's balance of payment.
According to the report, Saudi Arabia had a successful economic performance in 2009 with a surplus balance of payment of SR85.4 billion ($22.77 billion).
John Sfakianakis, chief economist at Banque Saudi Fransi, said the SAMA annual report is a thorough compilation of extremely useful data for all those interested on a variety of economic, social, educational and labor statistics. There is little doubt that domestic energy demand and supply is rising and remains a long-term challenge for the economy. Saudi Arabia cannot rely solely on hydrocarbons to produce energy and meet demand. Electricity demand is rising more than three times the pace of annual population growth. Saudi Arabia has also to strive for energy efficiency.
“The challenge of employment generation is an important challenge which the country is trying to address by spending 25 percent of its annual budget toward education, vocational training and teacher-training programs,” Sfakianakis said.
Despite the cumulative impact of the global economic crisis over the past years, the Kingdom's nonoil sector grew by 3.8 percent in 2009. The growth was however less than that of 2008 at 4.3 percent.
“The Kingdom’s nonoil GDP was expected to be weaker in 2009 than 2008 due to depressed consumer confidence following the financial crisis affecting many countries including Saudi Arabia in 2009,” Said Al-Shaikh, chief economist at National Commercial Bank (NCB), said, adding the slowdown is also due to conservative policies by Saudi banks in extending credit to the corporate sector along with decline in foreign financing.
However, Al-Shaikh said, the expansionary fiscal policy instituted by the government and easing of monetary policy by SAMA shielded the nonoil GDP from contraction.
The government spent a record SR596.4 billion ($159.04 billion) in 2009.
Al-Jasser said the growth would surge for the oil export giant after a sparse increase of 0.6 percent in 2009.
Government spending, mainly a $400-billion surge in investment in infrastructure, schools and the military over 2009-2013, is driving the economy of the world's leading oil supplier, according to economists.
"The Saudi economy is on a good growth path this year and we are expecting real output to reach 3.9 percent. Oil revenue would be higher than last year and government spending will provide essential macroeconomic support and stimulus to the private sector," Sfakianakis said.
Al-Jasser downplayed the threat of inflation, which surged to 6.1 percent year-on-year in August and sparked a chorus of complaints from consumers, especially over higher food prices. "I think also it is premature to make conclusions this early on the trajectory of inflation," he said.
He said "seasonality" — a reference to the big spending on food that takes place during the holy month of Ramadan, which ended Sept. 9 — was a component in the jump in prices.
He also said the sharp rise worldwide in key food commodity prices such as wheat had been an important cause in the surge of prices.
Nevertheless, he said, SAMA and other government departments have been "very active" in coordinating over fiscal policy to keep a rein on inflation.
On inflation, Sfakianakis said there is no doubt that interest rates will not address current inflationary pressures as the root cause of inflation today is due to a lack of affordable housing as demand is rising much faster than supply. “Food inflation is an area which Saudi Arabia can only address by pushing ahead with King Abdullah's agriculture initiative over the long-term but short of that, global food price pressures (due to supply shortages) over the short to medium terms and lack of appropriate market competition within will hamper the country's efforts to tame food prices.”
The SAMA chief disclosed that Saudi Arabia did not buy new gold reserves in 2010 despite data from the World Gold Council (WGC) that showed the Kingdom had doubled its reserves during the first-quarter.
"We did not buy new gold, this was just a merge and reclassifying asset, this gold was under different accounts and was brought under one account," he said.
In June, the WGC data indicated that Saudi Arabia lifted its reported reserves to 322.9 tons from 143 tons, making it the world's sixteenth-largest holder of gold.
Regarding interest rates, Al-Jasser said he did not see a need for an adjustment for now. "The system has ample liquidity, the reverse repo is at 0.25 percent, and since there are no pressures on the system of liquidity, there has not been a change recently".
SAMA will monitor the system and adjust "accordingly" should the need arise, he said.
Al-Jasser said private sector lending rose 4.9 percent in August.
When asked on a possible sovereign bond issue, Al-Jasser said: "It's up to the Finance Ministry and it issues bonds when there is a deficit, and this is not the case now. I don't think they will need to issue any.”
Asked about the likelihood of a budget deficit in 2010, he said: "We are optimistic. The budget is likely to reach balance this year."
He emphasized the need to tame domestic oil and gas consumption, which are too big for both its population growth and the size of its economy. "Data show that the Kingdom's domestic consumption of oil and gas is posting continuing growth and at high ratios. It rose by an average 5.9 percent over the past five years," Al-Jasser added.
— With input from agencies
