• Home
• /
• Markets

Saudi economy to achieve 4.4% growth target in 2014

Saudi Arabia’s economy can achieve growth of 4.4 per cent in 2014, in line with a forecast by the International Monetary Fund (IMF), the central bank governor said on Sunday.

“We see that the private sector will be the main growth driver this year. Government investments continue to be the main driver for private sector growth, so I am optimistic,” Fahad Al Mubarak told an annual news conference.

“I do not see high risks in specific areas.”

The country’s economic growth slowed to 3.8 per cent in 2013 from 5.8 per cent in the previous year as oil output, which accounts for nearly half of overall gross domestic product, fell after a robust increase in 2012. Actual government budget spending rose by a modest six per cent in 2012 and by the same rate in 2013 after a jump of over 26 per cent in 2011.

A Reuters poll of analysts in January this year predicted that inflation-adjusted GDP would expand 4.2 per cent in 2014 and 4.3 per cent in 2015. Inflation in the kingdom is forecast at three per cent this year by the IMF, Mubarak also said, citing the fund’s latest available prediction.

“I expect this will be reasonable. Results for the first few months of the year are less than three per cent.”

Consumer price growth eased to 2.8 per cent year-on-year in February, the lowest level since September 2012 when the statistics office launched its new rebased price index.

No impact from Fed

Saudi policy rates are reasonable and balanced, and tapering of the US Federal Reserve’s bond purchases is unlikely to affect the kingdom’s monetary policy direction, Al Mubarak said.

“Our policy rate, I think it is reasonable and balanced and it will achieve our policy objective given our fiscal situation,” he said.

“In terms of QE (quantitative easing), we were not affected much by its implementation in the first place. Now, that is being withdrawn, we don’t have to see an effect on our monetary policy or our banking system.”

Saudi Arabia has kept its repo rate at two per cent since January 2009 and its reverse repo rate at 0.25 per cent since June 2009, after a series of cuts that followed the 2008 global financial crisis.

Asked whether he was concerned about the sustainability of Saudi Arabia’s public finances in coming years following large spending increases in the past, he said: “In the last three years we had an expansionary budget but we were able to achieve surpluses. Going forward and given (the) forecast — actually (the) Reuters forecast for oil indicates that the rate is reasonable, and it will provide the government with a reasonable revenue going forward.”

Yuan a good diversifier

Al Mubarak said the Chinese yuan is a good option for diversifying foreign currency reserves but it is still far from being a reserve currency.

Asked whether it made sense to consider diversifying the central bank’s reserves to include the yuan, also known as the renminbi, or explore a currency swap agreement, he said: “We think it is a stronger currency, but it is far from being a reserve currency at this stage.”

“But indeed it represents a good option and a good diversifier and we have seen that some of the central banks have some reserves in the renminbi,” he said.

Mubarak, who does not comment on policy outside of annual Press briefings, did not say, however, whether the central bank had considered adding the yuan to its portfolio of net foreign assets. Its reserves, the vast majority of which are believed to be in US dollars, grew to a record $718 billion in January.