Saudi Arabia approves plan to boost financial sector’s contribution to GDP
Saudi Arabian authorities gave the green light to a financial sector development programme to help boost the industry’s contribution to the country’s gross domestic product, as the Arab world’s largest economy reduces its reliance on hydrocarbons to fuel growth.
“The programme supports the national economy by developing the financial sector and enhancing its effectiveness,” Mohammed Al Jadaan, the Minister of Finance, said late Wednesday.
“The objective is to increase the financial sector’s size relative to the GDP by 280 per cent,” Mr Al Jadaan said, according to a statement carried by the official Saudi Press Agency.
“The programme will create a deep, diversified, digitised and stable financial sector capable of attracting financial technology companies and focusing on financial literacy to bring the savings rate in line with leading international rates.”
The financial development plan is a pillar of Vision 2030, the kingdom’s wide-ranging reform initiative announced in 2016 that aims to lessen its reliance on revenue from oil.
As part of the multi-pronged approach, the government is reducing subsidies, raising taxes and selling stakes in state-owned assets.
That includes offering a 5 per cent stake in Aramco, the world’s biggest oil producing company, which may reap as much as $100 billion in a listing anticipated at the end of this year. It’s also pushing forward with wide-ranging social reforms aimed at boosting economic growth, including allowing women to drive and relaxing proscriptions against various forms of entertainment, such as cinemas.
The development programme is built on three pillars of enabling financial institutions to support the development of the private sector, ensuring the formation of an advanced capital market and promoting and enabling financial planning.
The three pillars encompass 42 initiatives.
“The programme will significantly impact financial institutions, the private and the individual alike,” Ahmed Abdulkarim Alkholifey, governor of the Saudi Arabian Monetary Authority, the country’s central bank, said of the financial plan. “This will manifest itself in the form of greater transparency in the financial ecosystem [and] facilitation of loans given through financial institutions.”
Mr Alkholifey said the plan included the goal of raising the percentage of financing to small and medium enterprises to 5 per cent from 2 per cent, and boosting mortgages to 16 per cent of outstanding financing in the banking system.
At the same time, the plan will seek to increase the penetration of insurance, with the aim of expanding mandatory motor and health insurance.
The main goal of the programme is to enhance capital markets by attracting more foreign investment.
In recent years, the Capital Market Authority has brought the Tadawul exchange in line with standards of global markets when it comes to the settlement of securities, for instance. Those efforts led to the upgrade of the country’s stocks to emerging market status by FTSE Russell in March.
“Our aim through the financial sector development programme is to place the Saudi financial market among the largest markets in the world by easing and enhancing the access for foreign investors in the local market, increasing the share of capital market assets,” said Mohammed bin Abdullah El Kuwaiz, chairman of the Capital Market Authority.