The global financial/economic crisis impacted Saudi Arabia
but it weathered the effects of the tsunami in a formidable way. At the eye of
the storm in 2009, as global output receded Saudi Arabia was one of the few
countries in the G20 recording positive real GDP growth (0.6 percent).
Policy reaction was immediate as it embarked on
counter-cyclical measures through the largest investment stimulus package, as a
percentage of GDP, by 5.4 percent in 2009 and 4.6 percent, respectively.
Having learned from the past, Saudi Arabia’s banking system
weathered the crisis superbly, in many ways adopting liquidity and capital
adequacy measures (18 percent as at 2009), non-performing loans at 3.3 percent
which remains among the lowest in the world.
What Saudi Arabia required for many years of its banks, is
now being discussed as part of Basel III. At the core of the financial crisis
was the exuberant and leveraged role of financial institutions. Never in the
history of the Saudi banking system has a there ever been a bank failure.
Prudence, adequate regulation and management of public finances have provided
Saudi Arabia with the right tools, guided by an important principle: save in
the good days and spend a portion in the bad ones.
The balance between spending and saving after nearly two
decades of fiscal hardship — as oil revenues fell to historical lows — and
consequent budget deficits and high government debt became the norm. In the
late 1990s Saudi Arabia’s government to GDP debt surpassed 100 percent whilst
budget deficits were a feature of the mid-1980s onward. Today, Saudi Arabia
government to GDP debt is close to 13 percent without incurring any external
government debt, on the back of very low external household and corporate debt
levels.
In fact, Saudi Arabia did not experience systemic excesses
during the pre-crisis phase, no real estate bubble and businesses avoided the
regional trappings of the “mine is bigger” syndrome.
Current account surpluses of oil producers including Saudi
Arabia, is the effect (not cause) of oil price fluctuations, and their sizeable
propensity to import, hence recycle excess capital. Surplus capital of Saudi
Arabia is either re-injected in the local economy or held as part of the
country’s foreign stabilization assets.
The foreign assets amassed (more than 100 percent of GDP)
have been deployed to support not just the counter-cyclical policies and its
physical capital but to keep on investing in the future of Saudi Arabia which
is the human capital.
More than 25 percent of the country’s budget goes toward all
levels of education as Saudi Arabia has embarked on a transformation of its
human capital by investing among the 34 percent of the population who are below
the age of 14 years of age. It is often forgotten that Saudi Arabia is a very
young country (78 years old), and within a span of two decades transformed
itself from being majority illiterate to majority literate whilst today 55
percent of all graduates of tertiary institutions are women.
Saudi Arabia will continue to play a systemic role in an
ever-changing multi-polar world where the G20 is at its core. The role of Saudi
Arabia as a seminal balancer in the international oil market goes without
saying. Today Saudi Arabia is the only oil producer holding 70 percent of the
world’s spare capacity. Nearly 4.5 million barrels are kept as spare oil to
meet future demand at a considerable cost to Saudi Arabia. Increasing its daily
capacity to 12.5 million barrels at a cost of $63 billion is no small amount. In
one field alone (Al Khurais), Saudi Arabia met the pledge it made at the height
of the oil price spike in July 2008 to add 1.2 daily production capacity from
one field alone. Nevertheless, as Saudi Arabia has made reassuring steps to
address the supply of oil the world should not discount the importance of demand
security and price volatility. The resource curse view should be revised:
abundant resources are a blessing, but the instability of their prices is the
curse.
Saudi Arabia has always maintained a position of moderation
when it comes to oil prices in order to support consumers and producers but
above all not to hurt global economic recovery efforts.
Cognizant of the challenges that lie ahead and its global
position, Saudi Arabia aspires to be switch from being a net exporter of
hydrocarbons to a net exporter of energy, generated from renewable sources. It
aspires over the next two decades to become a leader in renewable technologies.
The Kingdom’s leadership will continue to demonstrate growing readiness to
engage in the new multi-polar environment.
— The author is group general manager and chief economist at
Banque Saudi Fransi, Riyadh
