Country Report Saudi Arabia June 2008

Outlook for 2008-09

• No fundamental threat to the rule of the Al Saud family is expected over the outlook period. Some reforms will be introduced, but they will be limited by the Al Saud's desire to maintain power, internal unity and clerical support.
• The rising cost of living will be a source of discontent, along with unemployment and perceived corruption. The government will increase spending in an effort to alleviate the impact of inflation and unemployment.
• Saudi Arabia will remain concerned about Iran's nuclear programme, but it will seek to maintain an outwardly cordial relationship.
• Economic growth will remain robust in 2008-09, largely driven by strong government and foreign investment and by a gradual pick-up in oil output.
• High international oil prices will generate large current-account and fiscal surpluses despite surging import spending and an expansionary fiscal policy. The government will increase subsidies and public-sector pay.
• Inflation will rise to an average of 11.3% in 2008-09. The Economist Intelligence Unit judges that there is a 30% chance of a currency revaluation taking place, which would only temporarily address inflation.

Monthly review

• The king called a high-level conference between oil producers and oil consumers in Jeddah on June 22nd, in an effort to address the causes of this year's rampant increases in world oil prices.
• Saudi Arabia has said that it will increase oil output by 200,000 barrels/day (b/d) to 9.7m b/d with effect from July, having already raised production by 300,000 b/d in June. The immediate impact on world oil prices was limited.
• The oil minister, Ali al-Naimi, has said that Saudi Arabia could expand its total oil output capacity to 15m b/d by around 2018 if the market needs it.
• During the visit to the kingdom by the US president, George W Bush, in May, Saudi Arabia and the US agreed to co-operate on border security. A US firm, Raytheon, is a leading contender to train the new Saudi border force.
• After years of speculation that the 2010 date for GCC monetary union would need to be put back, the GCC has agreed to set up a joint monetary council in 2010, but has acknowledged that the single currency would take longer.
• Inflation continues to rise, reaching a record 10.5% in April, according to official data, following a 9.6% increase in March this year.
• Saudi Aramco has confirmed that it will press ahead with two large-scale refining joint ventures as part of its plans to increase its domestic refining capacity from 2.1m b/d to 3.2m b/d over the next five years.