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Saudi govt plans spending checks to curb inflation

“Price stability is a challenge and we are working to make sure the size of spending does not affect economic development,” Saudi Finance Minister Ibrahim al-Assaf said at a conference in the Saudi capital, Riyadh.

“We will continue our programme of investment expenditure. The main area we will look at is current expenditure,” Assaf said.

He did not make clear whether this involved spending less than the 380 billion riyals ($101.3 billion) planned in this year’s budget, an increase of 13.4 percent compared with 2006.

Average inflation last year rose to 2.3 percent, the first time it crossed 1 percent since 1995, according to Samba Financial Group.

Higher rents and food prices, including a near 60 percent jump in the cost of fresh vegetables, drove Saudi Arabia’s annualised inflation to 3.6 percent in January, according to government statistics.

“The initial indication is that inflation is stabilising,” Hamad Saud al-Sayyari, Saudi Arabia’s central bank governor, said at the same conference.

“Programming spending does not mean reducing but instead coordinating overall spending to avoid pressure on inflation,” Sayyari said.

He has ruled out revaluing the dollar-pegged riyal which has declined against the currencies of seven of the kingdom’s eight largest sources of import countries since the start of last year, helping fuel inflation, according to Samba.

“I don’t think (revaluation) would help reduce inflation,” Sayyari said.

Saudi interest rates roughly track US Federal Reserve rates, giving the country few monetary policy tools with which to curb inflation.

A weaker dollar has raised import costs for nations across the oil-producing Gulf which peg their currencies to the dollar, leading to higher prices and fuelling speculation that they might revalue.

The United Arab Emirates said in April it would penalise retailers and suppliers for “unjustified” price rises in a bid to control inflation, which reached 9.5 percent in 2006.