Country Report Saudi Arabia December 2008

Outlook for 2009-10

• The rule of the king, Abdullah bin Abdel-Aziz al-Saud, is not expected to encounter any fundamental challenges in 2009-10, given the fragmentation and repression of the opposition.
• Government policy will focus largely on economic development and will prioritise shoring up economic growth in the face of the global economic slowdown. Partial municipal elections scheduled for 2009 may be delayed.
• The government will invest in a large-scale expansion of crude oil, refining and gas capacity, while also developing the non-oil economy, in order to reduce the country's dependence on crude oil and to foster job creation.
• Saudi Arabia will continue to seek foreign investment into six new "economic cities", but may need to provide new public financing or scale back some of its plans, given the severe seizure in global financial markets.
• Based on our assumptions about oil production and prices, and given extensive spending commitments, the budget is forecast to record deficits of some 3% of GDP in 2009-10, for the first time since 2002.
• The current account is forecast to remain in surplus in 2009-10. However, the surplus is likely to narrow sharply to an average of 6% of GDP.

Monthly review

• Saudi Arabia's tense relationship with Syria has come under further pressure as a number of Syrian media outlets have alleged Saudi backing for a militant group accused of planning attacks in Syria.
• Domestically, senior officials have focused mostly on the economy in the past month, seeking to reassure the public about government spending and announcing a new minimum wage for nationals.
• The king has said that US$75 per barrel would be a "fair price" for oil, and the oil minister has highlighted the need for a price that will support investment by marginal oil producers in new production capacity.
• A survey by the Reuters news agency in late November has suggested that Saudi Arabia had cut its oil production by almost 500,000 b/d, to an average of 8.92m b/d, compared with 9.4m b/d in October.
• Reflecting continued concerns about local liquidity and lending, SAMA has announced another cut to interest rates, reducing the repo rate by 100 basis points to 3%, a three-year low, in November.
• The stockmarket has weakened further, in part because aggressive margin calls by banks have forced retail investors to sell shares. No new initial public offerings or bond issuances have been announced for months.

Source: Country Report

This report covers the following industry codes:
SIC Code: 70;47;60;20
NAICS Code: 72;48;52;311