The oil sector continues to dominate the economy, but strengthened budgetary institutions have reduced the linkage between the oil price and the level of fiscal spending, and progress has been made on diversifying the economy. Further strengthening of budgetary institutions, financial deepening, and a focus on increasing productivity are key going forward, the IMF added.
“Increased oil prices and oil production have resulted in sharply higher fiscal and current account surpluses, providing fiscal space to increase spending to address longstanding social issues, including employment creation, the availability of affordable housing, and financing for small and medium-sized enterprises,” said David Robinson, IMF mission chief for Saudi Arabia.
Non-oil sector growing
Supported by increased government spending and supportive monetary policy, overall real GDP is estimated to have grown by 7.1 percent in 2011, with 8 percent growth recorded in the non-oil sector— the highest since 1981. The private sector grew at 8.5 percent, with the construction and manufacturing sectors providing the largest lifts.
Despite its increased spending, the government has room to save, setting aside a portion of the extra oil revenues for future generations. “International reserves, which constitute the principal savings component of oil wealth, exceeded half a trillion dollars (94 percent of 2011 GDP). The banking sector also remains highly capitalized and liquid, with improved profitability,” the IMF said.
Housing finance. The Saudi government allocated almost two-thirds of a combined $110 billion fiscal package to a multi-year project to construct half a million new affordable housing units. The government also allocated an additional $11 billion to the Real Estate Development Fund to increase the availability of housing loans.
Employment. A new jobseekers’ allowance (Hafiz) and a new Saudization program (Nitaqat) to increase the employment of nationals in the private sector came into effect in late 2011. These programs have been supported by expanded job placement and training schemes.
Small and medium-sized enterprise financing. The government allocated about $5 billion to the Saudi Credit and Savings Bank, with the...