Bloomberg News

Saudi Outlook ‘Broadly Favorable’ on Spending, IMF Says

August 07, 2012

The outlook for Saudi Arabia’s economy is “broadly favorable” as the kingdom benefits from increased oil revenue and government spending, the International Monetary Fund said.

Gross domestic product will increase 6 percent this year, compared with 7.1 percent in 2011, the Washington-based lender said today in a review of the Saudi economy. Before the IMF announcement, Saudi Finance Minister Ibrahim al-Assaf said in an interview with Al Arabiya television that he saw no reason to change the country’s economic growth forecast of 5.9 percent this year after the IMF review.

Saudi Arabia, which depends on oil for 86 percent of its revenue, is spending more than $500 billion on infrastructure and housing. Banks have picked up lending at the second-fastest pace in the Gulf Cooperation Council as companies participate in opportunities generated by government expenditure. Crude oil prices are averaging $96.50 a barrel this year compared with about $95 in 2011.

“Higher oil revenues have strengthened fiscal and external balances and have boosted social spending and savings for future generations,” the IMF said. “The near-term economic outlook is broadly favorable, although geopolitical risks and oil prices remain sources of volatility.”

Inflation Concerns

The Saudi economy will probably expand 5 percent this year, the most in the six-nation GCC after Qatar, according to the median estimate of 12 economists compiled by Bloomberg in July. Lending to private Saudi businesses climbed 14 percent in June, the fastest pace since March 2009, central bank data show.

Saudi Arabia needs to “forestall any inflation pressures engendered by robust growth through a proactive use of liquidity and macro-prudential policy tools,” the IMF said. “While the government has built significant policy buffers, fiscal spending is above the level consistent with an intergenerationally equitable draw-down of oil wealth.”

Consumer prices climbed 4.9 percent in June from a year earlier and were up 0.2 percent from May, the Central Department of Statistics said on July 10.

The IMF welcomed Saudi Arabia’s efforts to stabilize oil markets. The country’s higher growth, public spending and expanded financial assistance have had a “positive spillover to the region,” the IMF said.

To contact the reporters on this story: Glen Carey in Riyadh at gcarey8@bloomberg.net; Nayla Razzouk in Dubai at nrazzouk2@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


Steve Ballmer, Power Forward
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus