Custodian of the Two Holy Mosques,

It is a great pleasure for me to present to you the 43^rd Annual Report of the Saudi Arabian Monetary Agency which reviews the latest economic developments in the Kingdom.

 

During 2006, the national economy continued its remarkable growth for the fourth consecutive year, depicting a real growth rate of 4.3 percent. The private sector recorded its highest growth rate since 25 years, increasing by 6.4 percent. The government sector also registered the highest growth since 9 years, growing by 6.1 percent. These positive results are attributed to many factors, namely, the enhancement of the private sector’s role, huge domestic and foreign direct investments in various sectors and economic activities in addition to the development of the global oil market which was positively reflected in a surplus in the State budget for the fourth year in a row. The surplus amounted to Rls 290 billion in 2006 in spite of the elaborate expansion in public spending which rose to an all-time high level of Rls 393 billion. Spending was focused on development projects that bolster up the growth of the national economy’s productivity and diversity. Also, allocations were made for amortizing part of the public debt. For the eighth consecutive year, the balance of payments registered a surplus of Rls 371 billion in 2006. The monetary and banking sectors effectively contributed to supporting these remarkable results by providing adequate liquidity to finance economic activities, apart from the modern and various banking services provided by commercial banks.

 

Custodian of the Two Holy Mosques,

          The year 2006 and the preceding period of this year witnessed the approval of many mega development projects to be executed in different areas, including oil, petrochemicals, gas, minerals, water desalination, integrated economic cities, education, health, infrastructure expansion and modernization such as roads, telecommunications, railways, municipal and rural services and other areas that will contribute to raising the Saudi citizen’s welfare and standard of living, and boost sustainable growth of the domestic economy. The volume of investments in these projects is estimated at hundreds of billions of riyals nationwide. The investments are being focused in productive projects and this does not contradict the policy of fiscal discipline being pursued by the state for enhancing economic stability. Therefore, robust growth is expected to continue in non-oil sectors such as manufacturing industry, transportation and telecommunications, building and construction and financial services. In addition, the private sector will undertake an active part in the economy. This will enhance the prospects of the Saudi economy for robust and balanced growth in the upcoming years, ongoing diversification and expansion of the production base, raising the standard of living and creating job opportunities for the growing national labor force.

 

Custodian of the Two Holy Mosques,

           Over the last two years, the world economy witnessed strong and broad growth especially in the emerging economies in Asia. The growth was accompanied by an evident increase in demand, which in turn, led to a rise in the world prices of goods and services. A specialized source estimated the rise in the prices of foodstuffs by 42 percent during the last twelve months. The policies pursued by some industrial countries in granting incentives for producing energy substitutes by using some food commodities played a role in this rise. The Saudi economy was also influenced by such developments and recorded high growth rates in demand for goods and services. According to the data of the Central Department of Statistics and Information, the cost of living index increased by 2.2 percent in 2006.  In July of this year, the index recorded an annual increase of 3.8 percent. While these growth rates are within expected limits in light of the strong momentum of the domestic economy and are reasonable compared to the levels witnessed by many emerging economies and countries in the region, the increase in the price index calls for caution and raises concern. A study of the history of inflation in the Kingdom over the preceding decades will show great stability in the inflation rate. The average annual growth rate of the cost of living index was 0.1 percent in the eighties, 1.2 percent in the nineties, and 0.3 percent during the preceding period of the current decade. Due to this great stability over that period, the rise in 2006 and the preceding period of this year has had a noticeable effect as it has surpassed the stability in the preceding decades which was familiar to consumers. The challenge in conducting the domestic economic policy in this period lies in achieving a balance between the government’s development ambitions and the need for controlling inflationary pressures. This can be achieved by making a balance between spending on development objectives and citizen welfare and policies aimed at containing increasing inflation.   

 

Custodian of the Two Holy Mosques,

          Our domestic economy is characterized by its great opening to the external world, flexible supply of goods and services, and freedom of capital flows in an environment marked by the stability of the exchange rate of the national currency. SAMA has been working to maintain the stability of the exchange rate to encourage investment and enhance the competitive capacity of the national economy. This policy, with the recognition of highly reputed international agencies, has helped in enhancing the country’s financial stability and supporting its economic development.

 

Custodian of the Two Holy Mosques,

           In view of the current growth rate of the Kingdom’s population and its composition, the most prominent challenges facing the national economy and development plans are creating sufficient job opportunities and making a balance between education outputs and the needs of the labour market. It is worth mentioning that great achievements have been made over the previous period by virtue of your wise directives for maintaining balanced economic growth aimed at diversifying the economic base, raising the standard of living, creating job opportunities for the increasing national man power, and continuing the current efforts for increasing investment in developing human capital with the effective participation of both the private and government sectors.

          May Allah guide your steps to greater success.