Muhammad Al-Jasser: Review of the latest economic developments in
Saudi Arabia
Speech by His Excellency Dr Muhammad Al-Jasser, Governor of the Saudi Arabian
Monetary Agency (SAMA), to the Custodian of the Two Holy Mosques, on the presentation of
the 46th Annual Report of the Saudi Arabian Monetary Agency, Riyadh, 25 September 2010.
* * *
It is a great pleasure for me that the celebration of our National Day coincides with the
submission of the 46th Annual Report of Saudi Arabian Monetary Agency which reviews the
latest economic developments in the Kingdom for fiscal year 1430/1431H. (2009) and the
first quarter of the current year.
Custodian of the Two Holy Mosques,
The impact of the global financial crisis on the world economy continued during 2009, with
the world production of goods and services recording a downturn of 0.6 percent in 2009.
However, economic variables over the past months of the current year indicate positive
growth rates. Given that our national economy is characterized by its openness to the
external world and high levels of trade integration with it, it is natural to affect and be affected
by developments in the global economic system. The growth rate of GDP at constant prices
declined to 0.6 percent in the Kingdom during 2009 compared to 4.2 percent in the preceding
year. The non-oil sector maintained good growth rates, growing by 3.8 percent in 2009
compared to 4.3 percent in the preceding year.
Several factors have contributed to reduce the impacts of the global financial crisis on our
national economy. The most important factors are the strength of our domestic financial
sector and increased government spending despite of the decline in crude oil prices. The
government spending stood at R1s 596.4 billion in 2009, reaching unprecedented record
levels. The balance of payments recorded a surplus for the eleventh consecutive year,
amounting to R1s 85.4 billion in 2009. The monetary and banking sector contributed
efficiently to enhancing these good results by providing appropriate liquidity to finance
economic activity. Money supply increased by 10.7 percent during 2009 and commercial
banks expanded in providing modern and miscellaneous banking services. Moreover,
positive economic developments included lower levels of domestic inflation, measured by the
general cost of living index, standing at 5.1 percent in 2009 compared to 9.9 percent in the
preceding year. Currently available economic data indicate an expected and notable
improvement in the domestic economic performance for the current year despite of resumed
inflationary pressures. The inflation rate stood at 6.1 percent in August 2010 compared to the
same month of the preceding year.
I must take the occasion to indicate that some important international reports have
commended some of the Kingdom's achievements. One of these reports is the IMF's
Executive Board's assessment report of the Kingdom's economic developments which
indicated that the Saudi economy was prepared to encounter the global financial crisis due to
its adoption of sound supervisory and regulatory frameworks and the prudent and
macroeconomic policies followed over the preceding years. The Board commended the
Kingdom for taking strong measures and increasing expenditure and for good management
of the monetary policy. The Fund appraised the Kingdom's efforts for maintaining the
soundness of the banking system, improving the climate of credit and the positive economic
outlook in general. It also supported the Kingdom's plans for resuming expenditure at
sustainable levels and the government's effort aiming at slowing the growth of domestic
consumption of oil products.
Custodian of the Two Holy Mosques,
In pursuance of the government's keenness to avoid the repercussions of the global financial
crisis, the Supreme Economic Council held a meeting, chaired by your Majesty, on
16 Shawwal 1428H (16 October 2008) to discuss the global financial crisis and the way to
curb its potential effects on the national economy and it called for taking a number of actions
to face it. In the area of monetary and banking policies, SAMA followed monetary policy
aimed at achieving stability in the financial sector and providing the necessary liquidity to
meet domestic demand for credit, by taking a package of proactive measures to enhance the
liquidity position and reduce the cost of lending in order to ensure that banks continue their
financing role in the development process in the Kingdom. The most prominent measures
were: reducing the Statutory Reserve requirements ratio, the Repo and the Reverse Repo
Rates several times, enhancing the liquidity position in the banking system by placing long
term deposits in local currency and US Dollar with local banks on behalf of government
institutions and organizations, reducing the pricing of treasury bills, facilitating foreign
exchange swaps in order to provide the necessary liquidity in US Dollar for the local banking
system. As for fiscal policy, the government continued the expansion in public expenditure
and increasing the pumping of funds to specialized lending institutions by an estimated
amount of Rls 40 billion during 2009.
Custodian of the Two Holy Mosques,
In spite of the adverse impacts of the successive financial crises, they clearly resulted in
combining international efforts to review the global financial system and commence taking
reforming measures to perform its role effectively and positively in the global economic
activity and international external trade. G20 has set a comprehensive work program to
enhance the global financial system, including the establishment of the Financial Stability
Board (FSB) in April 2009, attaining significant progress in the regulatory area and capital
adequacy standards, liquidity risk management, compensation rules for senior executives in
the financial sector, and transparency in registering hedge funds and rating agencies.
Hopefully, the application of these standards would enhance significantly the financial
positions of global institutions in the coming years. With this background, the Saudi economy
has not been affected considerably by the global financial crisis due to conservative and
prudent oversight and control policies followed since a long time. For instance, attention is
paid to capital adequacy ratios and loan provisions for countercyclicalities.
Custodian of the Two Holy Mosques,
Under Your ongoing patronage and follow-up, the Supreme Economic Counsel continued
achieving many developmental steps aiming at reconstructing and organizing the economy
and updating laws and legislation in order to promote the level of the economy's efficiency
and competitiveness, support the optimum utilization of production factors, and provide
sophisticated regulatory and administrative frameworks and an attractive environment to
domestic and foreign investments. As a result of these efforts, the economic performance
has improved greatly over the recent years. This has been highlighted by the growth of the
private sector's real GDP by an annual average of 5.1 percent during the last five years and
the increase in non-oil exports by an average of 14.6 percent during the same period.
Moreover, the investment environment in Saudi Arabia has improved, and the Kingdom has
obtained the eighth rank at the global level for attracting foreign direct investment (FDI),
according to the UNCTAD's report.
On the other hand, Saudi Arabia has recently been lauded by FATFS's report issued at the
end of last June for its commitment to the nine Special Recommendations related to
Terrorism Financing combined with the forty Recommendations on Anti-money laundering.
As a result, Saudi Arabia occupies the first rank at the Arab level, and one of the G-20's top
ten positions. The tribute paid to the Kingdom is as an appreciation by the international
community of the Saudi efforts in combating the crimes of money laundering and financing of
terrorism, and it highlights the soundness of the Saudi stance stemming from its adherence
to the tolerant Shari'a, implementation of the resolutions of the UN and Security Counsel and
implementation of the best practices in this field. All these achievements have been
accomplished by the grace of Allah Almighty, and then thanks to Your diligence and
guidance, may Allah safeguard You. The Kingdom of Saudi Arabia is one of the first
countries giving priority to combating the phenomenon of money laundering and financing of
terrorism. In addition, it has been in the lead in combating this phenomenon due to its
security, social and economic repercussions. Financing of terrorism has been criminalized in
Saudi Arabia in compliance with provisions of the Anti-Money Laundering Law issued by a
royal decree on 25/6/1424H (23/8/2003).
Custodian of the Two Holy Mosques,
The recent positive developments in our national economy represent a solid brick of the
economic and social development bricks that you have continued to consolidate in this
country since assuming the reins of government on 26 Jumada II 1426H (corresponding to
August 1, 2005). One of the most prominent indicators of development is the rise of total
government expenditure during the period from 2006 to 2009 to Rls 2.0 trillion. Total
government spending in 2009 reached Rls 596.4 billion, the highest in the history of the
Kingdom, and you, may Allah bless you, have been keen to take advantage of financial
resources to spend effectively on the completion of infrastructure projects and the
development of human resources. You have also urged quick completion of projects in the
transport, health, education and water sectors for the service of citizens. You - may Allah
bless you - have paid special attention to the human element where you have ordered the
establishment of a number of universities, opened the door of welfare and development for
future generations through the Custodian of the Two Holy Mosques' Program For Foreign
Scholarships, and ordered its extension for other five years. This is in line with your attention
paid to invest in the most important elements of development, namely, the human element. It
is hoped that this will lead, with Allah's grace and guidance, to the preparation of the coming
generations armed with science and knowledge that will complement the development
process witnessed by our beloved country.
Custodian of the Two Holy Mosques,
The Council of Ministers approved on 28th, Sha'aban, 1431H (9th, August, 2010) the Ninth
Development Plan of the Kingdom, which covers the period from 1431/1432H to 1435/1436H
(2010-2014). You, may Allah bless you, instructed all organs of the State to be very keen on
the implementation of their programs and projects and achieving their goals within their set
time limit, giving a high priority to those which have direct impact on raising the standard of
living of citizens and improving their life quality, especially in light of what have been
allocated as an ambitious development expenditure which amounted to Rls 1,444 billion,
67 percent more than the allocations of the Eighth Development Plan. This plan is
complementary to the achievements of previous development plans that led to a quantum
leap in living standards of citizens and laid solid foundations for the Saudi economy to
assume an important position in the global economy. The plan focuses on five main points,
namely, continued efforts to improve the standard of living and life quality of citizens, the
development and employment of the national manpower, structural development of the Saudi
economy, balanced development of the Kingdom's regions and enhancing the
competitiveness of the national economy and Saudi products in domestic and overseas
markets.
Custodian of the Two Holy Mosques
The endorsement of the Ninth Development plan coincided with the announcement by the
Central Department of Statistics and Information of preliminary results of the population
census. The population of the Kingdom amounted to 27.1 million, of whom about 18.7 million
are Saudis, and 8.4 million are residents. The number of houses stood at 4.6 million. These
results support your Royal instructions to exert every effort to achieve the objectives of the
Ninth Development Plan in a timely manner, especially with regard to enhancing citizens'
welfare, providing housing, employment, education, health care services, and modern
facilities needed, and working hard to fight poverty, paying special attention to balanced
development in all regions of the Kingdom.
At the regional level, the four member states of the GCC Monetary Union (Bahrain, Saudi
Arabia, Qatar and Kuwait) have ratified, at the beginning of this year, the convention of the
Monetary Union. By your Royal encouragement and support and that of your brothers the
leaders of the Council's states, the Monetary Council began its work as the nucleus of the
central bank to be established upon the completion of the main facilities and infrastructure of
the Monetary Union. The central banks and monetary agencies, members of the Monetary
Council, are doing their utmost to conduct the Council's work in accordance with the
guidance of the leaders of the Council's States.
In spite of these bright achievements, there are still many challenges posed to our
development march. Such challenges have all been the preoccupation of your majesty, and
you have been constantly urging the authorities concerned to overcome them. The most
prominent of those challenges are the following:
First: employment of the Saudi youth, which constitutes one of the major challenges facing
the national economy. In spite of the good achievements made in the preceding period,
estimates indicate that unemployment among Saudis amounted to about 9.6 percent in 2009.
Given the rate of population growth and structure, it is important to continue intensifying
current efforts to increase investment to develop the human capital with the active
participation of the private and public sectors. Efforts should be intensified for Saudizing the
jobs in the private sector, and obstacles hindering this process should be considered and
eliminated. The percentage of Saudization fit for the nature of each activity and sector needs
to be determined, and work should be made to activate the procedures and regulations that
respect productivity and safeguard the rights of workers and employers alike.
Second: good utilization of economic resources of our country, most notably oil and gas that
represent the most important elements of the economic development of the Kingdom.
Figures indicate that the rates of domestic consumption of the Kingdom's oil and gas are
growing at high rates, recording an average growth of 5.9 percent during the past five years.
This is a high growth rate compared to the population growth and the size of GDP, which
calls for investigating the reasons for such an increase and rationalizing it.
Third: provision of adequate housing for citizens which is an issue of diverse dimensions and
causes. Perhaps the most prominent of which are the limited availability of developable land
within the urban boundary at prices appropriate to the citizen's income, and the weakness of
funding sources due to the absence of a regulatory framework. Here lies the importance of
issuing financing and mortgage laws.
May Allah bless your majesty and guide your steps along the path of goodness.