Saudi econ­omy to grow 4.2pc in 2011: bank

The Pak Banker - - Company& -

RIYADH: Saudi Ara­bia's econ­omy is fore­cast to grow 4.2 per­cent in 2011 af­ter a 3.8 per­cent ex­pan­sion in 2010, driven by heavy govern­ment spend­ing, the re­spected Jadwa In­vest­ment bank said on Sun­day.

With buoy­ant crude prices and strong de­mand, the world's largest sup­plier of oil will eas­ily fund its bud­get and turn in a sur­plus, de­spite a planned seven per­cent hike in spend­ing from 2010's orig­i­nal bud­get, the Riyadh in­vest­ment bank said in a re­port.

And while both the state and pri­vate sec­tors will grow, state spend­ing will re­main the most pow­er­ful driver of the econ­omy.

"Govern­ment in­vest­ment spend­ing is bud­geted at 256 bil­lion riyals (68.3 bil­lion dol­lars) in 2011, equiv­a­lent to nearly 15 per­cent of GDP," the re­port said.

While on paper a bud­get short­fall of 40 bil­lion riyals (10.7 bil­lion dol­lars) is fore­cast for 2011, Saudi bud­gets are nor- mally highly con­ser­va­tive and most econ­o­mists pre­dict a sur­plus, even if the govern­ment over­shoots its spend­ing tar­get as also ex­pected.

"High spend­ing will not pre­vent the govern­ment from run­ning a bud­get sur­plus of around six per­cent of GDP, though it will re­quire an oil price of nearly 70 dol­lars per bar­rel to bal­ance the bud­get," Jadwa said.

Oil prices on global mar­kets have held above the US 90-dol­lars-a-bar­rel level in the past week. But it added that "there is a risk of a grad­ual in­crease in in­fla­tion ex­pec­ta­tions" driven by high govern­ment spend­ing and low in­ter­est rates.

"We ex­pect in­ter­est rates to re­main very low and do not an­tic­i­pate the adop­tion of new pol­icy mea­sures to tackle ris­ing prices," Jadwa said, dis­miss­ing the thought that Riyadh could ad­just the long-stand­ing peg be­tween the riyal and the US dol­lar. - PB News

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