Saudi Arabia, the Arab world’s largest economy, will keep plowing its oil revenue into kick-starting growth.

The kingdom, the world’s largest oil exporter, last year announced that it would spend $400 billion on infrastructure over a five-year period to bolster the economy, the largest stimulus package in the Group of 20 nations. The country is allocating almost $70 billion to investments this year, a 16 percent increase on 2009. Rising oil prices, which have rebounded to about $75 a barrel from less than $35 in February, are also likely to boost growth this year.
The Saudi government only managed to avoid recession last year through a large injection of public funds into the economy, said John Sfakianakis, Riyadh-based chief economist at Banque Saudi Fransi. It must extend its stimulus measures this year, he said.
“2010 will be a recovery year for the Saudi economy, based on high government spending,” he said. “This is what will keep the engine of the economy going.”
The Saudi Arabian Monetary Agency last year cut the repurchase rate to 2 percent, the lowest since 2004, and the reverse repurchase rate to 0.25 percent as the global credit crunch led to a slump in oil prices, crimping growth.
Inflation held at about 4 percent in the five months through November after accelerating to as high as 11 percent in July last year.
Saudi Arabia’s benchmark Tadawul All Share Index jumped 27 percent in 2009 and gained another 2.6 percent this year. The Bloomberg GCC 200 Index of companies in the six Gulf Cooperation Council states increased 10 percent last year, while the MSCI Emerging Markets Index, a gauge of 22 developing countries, surged 75 percent.
Businesses operating in Saudi Arabia may still struggle to get credit as foreign banks are reluctant to lend and local banks don’t have the resources to finance large projects, Samba, the kingdom’s second-largest bank, said in a report on Jan. 18.
“Until banks have the confidence to lend we won’t see credit conditions improving and this will hold back the recovery,” Paul Gamble, head of research at Jadwa Investment, said in an interview at an investors’ conference in Riyadh Monday.
Bank lending slowed following the financial market turmoil and the default of two Saudi family conglomerates, Ahmad Hamad Algosaibi & Brothers Co. and Saad Group. Eighty lenders, including BNP Paribas SA and Citigroup Inc., are owed at least $15.7 billion, sparking a flurry of litigation.
(Source: Bloomberg)