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Saudi wealth reaches new heights

Saudi Arabia: Sunday, July 13 - 2008 @ 13:02

Saudi crude production has reached 9.7 million barrels-per-day (bpd) in July.

By the end of 2009, sustainable capacity is due to be increased to 12. 5 million bpd.

Peter Burnett chief executive of UBS Investment bank in the Middle East and North Africa, which has just received a licence to operate in the kingdom, says: ‘They have petrodollars flowing in and are in the process of enormous wealth creation.’

The kingdom’s economy has doubled in size since 2002 and its nominal gross domestic product is projected to reach $465bn in 2008, and already accounts for half the wealth management business in the Middle East.

Should oil prices continue at present levels and above, Saudi income is likely to grow well beyond the $1bn a day it had already reached before world prices hit $140 a barrel.

Saudi ratings upgraded

Fitch Ratings recently upgraded Saudi Arabia’s sovereign ratings as a result of the kingdom’s rapidly increasing oil revenues.

The main Saudi strengths are described as very low debt figure and large domestic and external assets, which have built a buffer against future shocks.

Even if there were to be a sharp decline in oil prices to as low as $30 a barrel the Saudi government would not need to make major spending adjustments due to the size of its domestic and external assets and capacity to borrow, Fitch notes.

Strengthening external and internal balance sheets and economic and structural reforms are also reflected in the growing pace of private sector growth.

Inflation is the biggest danger to the economy and social stability with the index reaching double digits for the first time in more than 35 years.

Food and rent make up nearly 40% of the consumer price index basket.

The rental index including rents, fuel and water has soared 18.5% while food prices have accelerated 15%.

The main cause is higher domestic demand for housing, office accommodation and food, but pressure is being increased by the decline in the dollar to which the riyal is pegged.

Inflation fighting measures

However, King Abdullah has pledged to use government funds to offset the soaring prices of basic commodities, declaring recently that the Kingdom will also use its financial reserves to combat inflation.

A reduction in duties from 20% to 5% on 180 food items, consumer goods and construction materials for the next three years was announced at the end of March.

Hikes in salary were announced earlier in 2008 for 2 million public sector workers.

The cost of health and medicines is being examined.

A new mortgage law has also been announced in an effort to stimulate the housing market.

As oil revenues grow the government will find it difficult to resist further calls to help inflation hit consumers.

See also:
Jeddah Summit fails to end oil price uncertainty
Saudi tourism strategy takes shape

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Sunday, July 13- 2008 @ 13:02 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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