Saudi Arabia increased expenditure in the state budget of 2009.
Projected deficits amounted to SR65bn, the first recorded deficit since 2002 due to the drop in oil prices internationally.
Minister of Finance, Dr Ibrahim al Assaf, has said that the Kingdom sees no need to resort to borrowing in order to cover for the projected deficit this year, underlining the fact that though this increased the tendency to resort to loan markets if necessary, it is unlikely that this would happen this year or next.
While Saudi oil and petrochemicals industries were negatively influenced by the decline in steel due to the global financial turmoil, other sectors of the economy remained active due to private and governmental investment incentives in huge projects, said Assaf.
In an interview with Reuters, the Saudi minister said: ‘One feels concerned that this [low oil price] would have negative effects when the global economy starts recovering,’ reiterating that King Abdullah views the fair oil price to be $75 a barrel.
The new governor of the Saudi Arab Monetary Authority (Sama), Muhammad al Jassir, said that the global financial crisis is still peaking, but will not affect Saudi banks’ fulfilling of their commitments, or their ability to turn profits.
He also stressed that the financial repercussions of the global crisis are still severe and have not yet come to an end. He added that Saudi banks will be affected by local factors rather than external ones as most of their investments and interactions are conducted locally.
Al Jassir stated that Saudi governmental spending is stable and that the state budget of 2009 will enable it to resume national projects.
By the end of Q3 of 2008, the volume of consumption loans provided by Saudi banks recorded the fourth consecutive drop, reaching SR178.086bn compared to SR178.9bn by the end of Q2 of the same year, a decrease of SR851m at a rate of 0.47%.
The drop in the volume of consumption loans was met by an increase in total credit card loans, which saw an increase of 6.2% by the end of Q3, from SR529m to SR8.9bn.
Statistics are periodically released by SAMA and they include loans offered by Saudi banks, not those offered by installment companies. Statistics show that by the end of Q3 of 2008, overall consumption loans and credit card loans amounted to SR187.1bn compared to SR187.3bn in Q2. It is worth mentioning that its volume amounted to SR187.7bn in Q1 and SR191.4bn in Q4 of 2007.
Loans mainly varied between realty loans, which dropped to around SR15.1bn in Q3 compared to SR15,6bn in Q2, and car buying which increased slightly to SR37.9bn compared to SR37.7bn in Q2 of 2008. In addition, Sama classified SR125bn as loans for other purposes, which dropped by SR532m.
As to the times of redemption given to personal loans, a sum of SR120m is classified as long term loans; those due to over three years, while a sum of SR41.4m is classified as med-term loans; ranging from one to three years. Loans classified as short-term loans, one year or under, amount to SR25.6bn.
Despite the quarterly slowdown witnessed with regard to personal loans, they are likely to regain their vigour in the future. In a SAMBA report on the Saudi economy in 2009, it is indicated that consumer debt accounts for less than 14% of GDP and that bank claims for the private sector are less that 40% .
A report by financial group EFG-Hermes has said that rigid conservative regulatory restrictions helped protect the Saudi banking sector. Saudi banks were the least affected among GCC finance houses by the global crisis, as they are the least exposed to the real estate sector and focus on local markets.
The report projected a slowdown in budget growth as banks re-evaluate credit risks and examine the feasibility of private sector projects. The drop in oil prices affected liability in the private sector, which is now seeking to re-evaluate some of it projects.
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