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Saudi to boost infrastructure spending by 15pc

Riyadh, December 13, 2010

Saudi Arabia is set to boost its infrastructure spending by about 15 per cent in 2011 from the estimated $70 billion spent this year, according to a report.

Saudi Arabia's fiscal policy (in the form of government spending) will remain a key driver of the country's economy, said Standard Chartered bank in its forecast.

In 2010, the Saudi cabinet had approved a $385 billion spending programme for the 2010-14 period, largely allocated to infrastructure and social services.

'We expect fiscal dynamics to be expansionary in 2011, underpinned by population growth dynamics and the government’s commitment to follow through on infrastructure investments,' the bank said in its 'Global Focus-2011- The Year Ahead,' report.

The bank also expects the Kingdom's fiscal spending to be almost five per cent higher than the previous year’s fiscal budget ($125.3 billion), with infrastructure-related expenditures ($70 billion) increasing about 15 per cent from 2010.

Higher oil prices and government commitments under the five-year development plan are key factors behind these estimates, it added.

'We believe the move towards infrastructure-driven spending is healthier for the Saudi economy than hydrocarbon-driven growth, given the better filter-through effect of such spending to the real economy,' Standard Chartered said in the report.

'Even where spending is allocated to the energy sector, it will be concentrated in the downstream sector. This is positive, as it will create jobs for Saudi nationals due to the labour intensity of the sector,' it said.

The Saudi banking sector remains robust, with loan-to-deposit ratios below 85 per cent. This means banks have the capacity to lend and, unlike some banks in the region, they are not challenged by the structural problem of high loan-to-deposit ratios.

The World Bank has ranked Saudi Arabia as the world’s 11th most competitive country in its latest 'Doing Business' survey, 17 steps ahead of the closest competitor in the Middle East.

'We expect Saudi Arabia to maintain its leading position in 2011, although competition is building from the UAE, Qatar and Bahrain.'

However, a key challenge for Saudi Arabia will be the level of domestic oil consumption, which has grown at an annual rate of 5.9 per cent over the last five years, the report stated.

The head of the state oil producer has event warned that the country’s crude oil exports could begin declining as early as 2011, it added.

With regard to other GCC states, Standard Chartered said, 'There was a slowdown in infrastructure spending in Qatar and Abu Dhabi. But the momentum is likely to pick up again in the next three years, as several of these projects, including roads and railways, were delayed but not cancelled.'

'We are positive on the longer-term outlook for infrastructure investment in Qatar. The government plans to spend close to $20 billion on new roads and transport infrastructure over the next five years, and a $36 billion metro system is in the pipeline.'

The country is also building a $11 billion airport and a $5.5 billion deepwater seaport, it said.

Qatar’s economy was likely to benefit in the short term from higher infrastructure spending as the country gears up to host the FIFA World Cup in 2022, the Standard Chartered said in the forecast.

With regard to the UAE, the bank said project spending would surge to $85 billion as projects delayed in 2011 will break ground. 'The emirates will see renewed investment in project development by quasi-sovereign entities, but we also expect a sharp rebound in sovereign spending on infrastructure,' it said.

According to the report, the Abu Dhabi budget was the largest in the UAE. 'While the 2010 budget reduced expenditure by $12 billion to $56 billion, spending is likely to reach the $65 billion to 70 billin range in 2011 as the sovereign pushes ahead with infrastructure development.'

'We estimate that the value of all projects executed in the UAE increased to $61 billion in 2010 from $47.1 billion in 2009. Much of the spending increase was driven by Abu Dhabi quasi-sovereign entities,' it added.

On Kuwait, the bank said, 'Government spending should gain traction in 2011 as Kuwait’s four-year development plan gets underway.

'The $104 billion plan approved in February 2010 is the first of a series that Kuwait plans to roll out under its ‘Kuwait Vision 2035’ programme. The key goal is to develop Kuwait into a trade and financial hub in the next 25 years,' the report added.-TradeArabia News Service




Tags: Saudi Arabia | infrastructure spending |

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