Kingdom’s Real GDP Expected To Rise By 7.5% In 2011: Saudi Economic Survey

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The International Monetary Fund (IMF) has revealed that according to its latest estimates, it expects the real gross domestic product (GDP) of the Kingdom of Saudi Arabia to rise by 7.5 percent in 2011 and 3 percent in 2012.

Consumer prices in the Kingdom are expected to increase by 6 percent in 2011 and by 5.5 percent in 2012.

As far as current account balance is concerned, IMF expects its growth by 19.8 percent in 2011 and by 13.8 percent in 2012.

The IMF had earlier advised Saudi Arabia to curtail, beginning from 2011, its massive stimulation program, which it had begun 2 years ago, in order to overcome inflation averages, that showed resurgence of growth. It would be prudent for the governments in the Middle East region to take exceptional activation measures and aim their financial policies toward reduction of government debt.

The IMF said that there was still an increased proportion of crippling debt in a number of GCC states, and there was need for strengthening of organizational framework and oversight work, in conjunction with efforts for periodic review of the organizational work, strengthening of precautionary liquidity reserves and capital, in addition to treatment of problems in effected enterprises in the financial system and augmenting practices followed in correction of the situation in affected banks.

IMF said that there is no doubt that the GCC states have actually taken legal measures to control their general financial situation and their financial policies are continuing for the sake of growth in private sector credit.

This comes at a time when local economic expectations indicate that the rate of growth in the Saudi economy is to jump to 5.6 percent, and is registering higher levels ever since the year 2005. This jump could basically be attributed to increase in oil production, as the Kingdom intended to raise production to remedy the shortfall in Libyan supplies.

A report issued by Jadwa Investments estimates that the Kingdom’s oil production in 2011 has been increased by about 7 percent over its production in 2010.

In spite of this increase, oil prices have dangerously climbed beyond $100 per barrel level.

The report noted that inflation may climb beyond short range estimates due to excessive increase in consumer expenditure. However, in accordance with medium range estimates, availability of more housing facilities would lead to notable reduction in inflationary pressures. At the same time, the decision to grant two months’ additional salaries to government employees and similar compensation granted in the private sector, would lead to increased expenditure in 2011.

Despite the present anxiety in the populace due to rising averages of inflation in 2011, official assurances as given by the Minister of Finance, Dr. Ibrahim Al Assaf, recently, indicate that the enhanced governmental expenditure would have a positive effect on inflation, but only in medium and long terms.

He has been reported as saying that the governmental expenditure on the provision of housing to citizens would help in limiting the problem of rising house rents, although increased expenditure would necessarily lead to enhanced inflationary pressures. Minister Al Assaf said that the main reason of the rise in averages of inflation in the kingdom at present is the increase in house rents, and the governmental expenditure aimed at provision of housing to citizens would help in solving this problem. He added that housing rental costs were considered to be main element in the general level of increase in expenses, and the huge amounts set aside for construction of housing would lead to a general decrease in prices, over medium and long terms.

Publisher’s Note: This article appears in the most recent edition of the Saudi Economic Survey, and has been published with the permission of the editor. To subscribe to the print edition of the Saudi Economic Survey, visit www.saudieconomicsurvey.com.