Saudi economy seen up by 4.2% in 2011

According to BSF, underpinning the optimistic outlook is a view that oil prices are poised to hold ground above $80 a barrel. (AGENCY)

Firm oil prices along with record high budgetary spending and stronger private sector involvement will boost Saudi Arabia’s economy by nearly 4.2 per cent in 2011, a key bank in the Gulf Kingdom said on Wednesday.

The projected growth is above the 3.8 per cent real GDP expansion recorded in 2010 and far higher than the 0.6 per cent rate in 2009, when the economy of Saudi Arabia and other Gulf crude exporters were jolted by the global fiscal crisis and ensuring oil price collapse.

“Consistent oil price gains in the early part of 2011 have set the stage for a respectable turnaround in Saudi economic activity this year. GDP growth in the world’s top oil exporter looks poised to accelerate due to a blend of higher crude oil output, state stimulatory spending on strategic projects and quicker private sector expansion,” Banque Saudi Fransi (BSF) said in a new study sent to Emirates 24|7.

“Whereas in 2010 the government predominately shouldered the burden for financing projects, the private sector is likely to become progressively more engaged in the recovery process this year.Bank lending should pick up steadily though not significantly.”

The study expected inflationary pressures to moderate on the whole but remain historically elevated while the government could post sizeable budget and current account surpluses that would enable it to further pay down domestic debt and augment its foreign assets that are now at one of their highest levels.

According to BSF, underpinning the optimistic outlook is a view that oil prices are poised to hold ground above $80 a barrel.

Other than 2008 when prices soared to record peaks near $150, an average price above $80 a barrel in 2011 would be the highest annual price recorded this decade, it said.

“Still, Saudi Arabia’s oil production, set to rise to 8.48 million barrels per day (mbpd) from 8.2 mbpd in 2010, remains well below the average 9.1 mbpd produced from 2004 to 2008,” the study said.

“The government will thus rely on its own financial muscle and private sector participation to channel economic growth along an upward trajectory.”

BSF noted that since the onset of the 2008 global financial crisis, the Saudi government has taken up the “slack” for keeping the economy in motion. Its figures showed that in 2010, the government sector expanded at its fastest pace in 13 years of 5.9 per cent, far outpacing private sector growth of 3.7 per cent.

“Relying on government-led growth would not form a practicable policy in the long term and we have already witnessed evidence that the state is eager to re-integrate local and global investors in the development process,” the study said.

“This will take time, however, and the 2011 Saudi budget it another record with planned expenditures. The government has nonetheless deliberately slowed down the pace of growth in spending allocations to minimize overspending and compel private businesses to return to the drawing board.”

While private sector GDP growth is likely to rise to 4.2 per cent this year and to 4.5 per cent in 2012, the sector’s rate of growth is still lags pre-financial crisis levels and in our view is not high enough to generate an adequate stream of new jobs needed to substantially reduce unemployment and relieve the recruitment strain from government departments, the report said.

In the five years to 2008, Saudi private sector GDP expanded 5.5 per cent per year on average, it said, adding that between 2009 and 2013 the sector’s annual growth should slow to 4.2 per cent.

“The government is therefore confronted with a challenge to extensively re-integrate the private sector in development both through public-private partnerships and independently,” it said.

“ A major overhaul is needed in private sector job creation for Saudi nationals, who accounted for just 9.9 per cent of total private sector employees in 2009.”

The study noted that the public sector continues to act as an employer of last resort for Saudis as it hired 71,900 in 2009 while the private sector’s Saudi employment figure fell by 147,576 jobs.

“The Saudi private sector created nearly 821,177 jobs in 2009, according to official data, but solely relies on expatriate labour for expansion, an alarming trend that should be reversed to accommodate the local job market,” BSF said.

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