Speech by His Excellency the Governor of SAMA to the Workshop on:
"Economic Policies and Prominent Challenges Facing the Saudi Economy to Achieve Sustainable Development"
In the name of Allah, peace and blessings be upon His Messenger and his family and companions,
I would like first to extend my sincere thanks to His Excellency, the Director General of the Public Administration Institute, Dr. Ahmed AlShuaibi for the kind invitation to me to inaugurate this important workshop. My thanks are also extended to the colleagues in the International Monetary Fund for their participation in organizing this workshop that serves as another link in their permanent cooperation with the Kingdom in several areas, including participation in the provision of training courses, in addition to the efforts of the colleagues in the Middle East Department during the Article IV consultations with the Kingdom and their valuable opinions about the economic policies pursued by the Kingdom. It is also worth mentioning the technical assistance provided by the IMF, including improving the balance of payments statistics; monetary, banking and financial data and the national accounts data. It also gives me pleasure to laud the Institute of Public Administration, which often conducts such useful workshops, seminars, and conferences for development of administrative and economic competencies. I am happy to share with you the inauguration of this important workshop. Its theme fits well with the achievements and requirements of the current and future stages of the national economy.
Dear brothers,
The Kingdom has pursued during the reign of King Abdullah bin Abdulaziz expansionary development policies, resulting in huge and comprehensive achievements in the various sectors of the national economy. In continuation of this approach, the Custodian of the Two Holy Mosques King Salman bin Abdulaziz issued in the first week of assuming the reins of power a series of historic and important decisions. Their timing has come as a confirmation of his strong interest in the continued strengthening of the growth and development policy at various levels in this blessed country. These decisions include reformation of the Council of Ministers and restructuring of the state supreme councils, joining their functions into two main councils; namely, the Council of Political and Security Affairs and the Council of Economic and Development Affairs. There is no doubt that the aim of establishing the two councils is to enhance the effectiveness of decision-making and coordination of efforts and responsibilities in the political, security and economic fields. The decisions also include merging the Ministry of Higher Education and the Ministry of Education in one ministry in order to unify the education strategies and plans at the various levels. The decisions also involve a generous allocation of funds to meet the needs of citizens and support the services sectors. These decisions have resonated well with the Saudi society, and, God willing, will be a strong starting point for the continuation of the comprehensive and sustainable development in the reign of the Custodian of the Two Holy Mosques King Salman bin Abdulaziz.
Dear attendants,
Given the subject of the workshop, I would like to shed light on some of its topics, and begin by the role of economic policies drawn by the state to promote sustainable economic and social development. In spite of the diversity of these policies, the most important and influential in the economy are fiscal policy and monetary policy, in addition to the petroleum policy of the Kingdom. Here, we should highlight the importance of continuous coordination between those in charge of monetary and fiscal policies and provision of adequate flexibility and tools to deal with the developments and fluctuations of economic cycles, especially that the Kingdom's economy is significantly influenced by developments in the world oil markets. For petroleum policy, it is well-known that the Kingdom has always sought to stabilize the world oil markets to serve the interests of producers and consumers alike and the interests of the national economy over the medium and long terms.
Saudi Arabia has adopted a wide range of policies, decisions and actions aimed at restructuring and regulating the economy, updating laws and regulations so as to enhance the level of efficiency and performance competitiveness and support the optimum operation of the factors of production, as well as to provide a regulatory and administrative sophisticated framework and investment attractive environment. The economic policies of the Kingdom have focused on four vital areas. In the forefront comes the development of national human resources, modernization and maintenance of infrastructure projects, amortization of public debt, and build up of the state's financial reserves in order to cope with the economic counter cycles and unfavorable developments in the global markets. In response to this trend, fiscal policy has seen continuous significant expansion in the past ten years. Total actual expenditures rose by more than three-fold. This is the longest period of recovery witnessed by the national economy in its history. The real GDP for the non-oil sector grew at an average annual rate of 7.5 percent.
In contrast, SAMA has sought to undertake several precautionary measures to reduce the impact of fiscal expansion on inflation during 2007 and most of 2008, but it had to follow an expansionary monetary policy in the fourth quarter of 2008 to deal with the consequences of the global financial crisis, aiming to achieve financial stability, and support domestic economic activity by enhancing liquidity. Thanks to Allah, the financial sector has surpassed the repercussions of the crisis, and inflation began a continuous decline to 2.7 percent in 2014.
Dear attendance,
The second point I would like to highlight is the vital role of the monetary policy in financial stability and its contribution to a sustainable economic development. SAMA has worked on establishing the appropriate infrastructure that must be in place for the development and stability of the financial system through the stability of the local currency, and increasing the efficiency and solvency of the banking system, and supervision thereof in accordance with best international standards and principles. The Kingdom's economy is characterized by merits of its openness to the outside world, and free capital inflows and outflows. As you know, the Saudi riyal exchange rate has been pegged to the U.S. dollar at a fixed rate since mid-1986. This arrangement is based on deliberate economic grounds, and on our experience extending over more than a quarter of a century. By the testimony of international financial institutions, the stability of the riyal exchange rate has played an important and vital role in the stability of economic development in the Kingdom, and has had a significant positive impact on strengthening confidence in the financial system and the stability of domestic prices, resulting in a substantial improvement in business activity and promotion of more domestic and foreign investment in the national economy.
Dear audience,
The third point I would like to talk about is the most prominent economic achievements of the Kingdom in the past decade. As you know, the national economy is among the world's largest and most significant economies, represented by the Group of Twenty. It is also the largest at the level of the Arab region. One of the achievements is the growth of the private sector's real GDP by more than two-fold and non-oil exports by about three-fold during the same period. This was attributable to the government's generous spending on the development of the economy�s infrastructure and human resources. The public debt to GDP also declined to 1.6 percent at the end of 2014. On the monetary and banking front, domestic liquidity rose by about three and a half-fold and the banks' claims on the private sector increased by about four-fold. As a result of these developments, the Kingdom's credit rating has improved in the global reports, such as the Competitiveness Report and Doing Business Report. Fitch has also upgraded the credit rating of the Kingdom from -AA to AA in 2014, with a stable outlook. These accomplishments have been attained despite the turmoil that had stricken the Middle East that had been unprecedented in its modern history.
Among the programs in which the Kingdom has made great strides is the privatization of some government sectors and services in order to raise production efficiency and competitiveness through the liberalization of markets and provide those services on a commercial basis.
SAMA has been coping with the successive developments in the financial sector. In the insurance sector, SAMA has continued to guide the sector to further regulation and operation in accordance with high professional standards and practices. In the area of control and supervision over real estate finance and finance companies sector, SAMA has prepared early to carry out the responsibilities assigned to it under the financing laws. SAMA has licensed thirty banks and companies to practice real estate and non-real estate finance activity and granted preliminary approvals to 13 companies to fulfill the licensing requirements. SAMA has recently issued Microfinance Rules that will contribute to the creation of jobs and provision of finance to vocational small and medium enterprises.
With regard to SAMA's efforts to protect financial sector�s consumers, SAMA is working to protect customers' interests and rights and to ensure that the financial sector is dealing with customers in a professional and fair manner. SAMA established a consumer protection department. One of its most important goals is to ensure that consumers of the financial institutions under SAMA's supervision--banks, insurance companies and finance companies--receive a fair treatment characterized by transparency, honesty and sincerity in their financial transactions and obtain financial products and services easily and smoothly, at an appropriate cost and with a high quality. SAMA also established a call center to receive and resolve consumer complaints. SAMA has issued Banking Sector Consumer Protection Principles and Insurance Sector Consumer Protection Principles. Finance Sector Consumer Protection Principles are to be issued soon. SAMA is stringently supervising the implementation of such principles by banks and companies.
Dear audience,
The last point I will talk about is the challenges facing the national economy. It is very well known that challenges are a stimulus associated with aspirations and goals and no advanced or emerging economy is free thereof. Despite the huge national economic achievements and gains attained, there are still existing challenges that require further concerted efforts to address them. Among the most prominent of which is the need to diversify income sources and the production base and enhance the private sector's role in the development process. Although the private sector's output has been growing continuously and remarkably since more 25 years, this it depends on the output of the public sector and is mostly concentrated in the services sector. Therefore, the focus should be shifted to productive sectors such as industry and opening wider areas for privatization.
One of the challenges confronting the national economy is the modest Saudization of the local labor force in the private sector. This requires intensifying current exerted efforts to develop a medium and long-term strategy with the active participation of the private and public sectors to address this challenge. Recruitment of foreign labor should be rationalized; and general, technical and vocational education programs should be further developed. The output of higher education needs to be enhanced to cope with the market needs.
One of the existing challenges is enhancing the efficiency of the local consumption of energy and water, which resulted in distortion and a large waste of those important resources in addition to increasing the financial burdens on the government. This requires a review of price subsidies, which should be changed in a gradual and elaborated manner, to ensure that subsidies continue to target low and medium income segments of the community, taking into account the social impacts of any change.
Another challenge is raising the efficiency and productivity. The first chapter of the government budget, Salaries, represents a high ratio and the work to reduce it requires raising productivity, privatizing some public utilities, and curbing expansion of this chapter for the benefit of development and production projects. Indeed, the Institute of Public Administration is undertaking a commendable role in training and education to raise the efficiency and productivity of the public sector staff.
Finally, one of the short-term, or maybe medium-term, challenges facing the public finance is the significant decline in oil prices over the past few months, leading to a decline in oil revenues that constitute a high proportion of the state budget�s total revenues. A deficit is expected to be recorded this year. As I have mentioned earlier, the government has adopted an approach of building up financial reserves to counter such fluctuations in oil prices. The options considered now to select an appropriate one to finance this deficit is either withdrawal from these reserves, borrowing from the domestic financial market which is characterized by a liquidity abundance and a low lending cost or, perhaps, both of them.
Dear audience,
In conclusion, I thank again the organizers of this important workshop. I wish success for the participants and I hope their participation in its topics will be effective. I have reviewed with you the most important economic achievements made in the Kingdom in the recent years and some of the challenges facing the national economy, which I am confident and optimistic that we will overcome and turn them into growth opportunities with the help of Allah, under the guidance of our wise government, led by the Custodian of the Two Holy Mosques King Salman; his faithful Crown Prince and Deputy Crown Prince.
Assalamu Alikum Warahmatu Allah Wabrakath