Saudi Arabia presses with big projects despite oil price fall

Saudi Arabia's finance minister said the government remained committed to priority infrastructure and development projects, despite low oil prices, but warned that the kingdom would need to "rationalise" spending.

Ibrahim al-Assad, finance minister, told a conference in the capital on Tuesday that the kingdom was in a strong enough financial position to help bolster private sector growth through capital expenditure projects.

"Our financial position is very strong," he told a conference in the capital. The budget is focusing on development programmes that will activate the private sector."

He said the government had committed to almost 2,600 projects valued at $50bn last year, although it was unclear whether this was an increase on the previous year.

But he acknowledged that "low oil prices present a challenge for exporting countries, including Saudi Arabia". He also emphasised the impact of security threats on economic growth for many countries in the region.

"There is no doubt that the kingdom will face challenges in these years, which requires prudential measures, diversifying our economy and rationalising public spending," he said.

His comments came as the International Monetary Fund also warned that the kingdom would need to reduce the pace of spending growth, despite its large financial reserves.

"While Saudi Arabia will need to adjust spending plans over time, significant buffers will allow the country to do so gradually," said Masood Ahmed, the IMF's Middle East director, on Tuesday.

As well as going ahead with mega projects, Saudi Arabia's new king, Salman bin Abdel Aziz al Saud, has announced bonus payments for public officials that have placed further strain on state coffers and reinforced nationals' preference for government jobs over the private sector.

The IMF, in its latest regional economic outlook released Tuesday, said real economic growth would be about 3 per cent this year and fall to 2.7 per cent next year.

The budget deficit is expected to fall to 14 per cent of GDP this year, dropping to around 8 per cent next year, the IMF added.

The kingdom has spent around $50bn of its ample foreign reserves over the past six months to help it withstand the effect of oil prices that have fallen by half since mid-June last year. But dependence on the oil sector for a huge portion of government revenues still means growth in both the oil and non-oil sectors is set to slow in 2015.

The creation of the council of economic and development affairs, formed by King Salman when he came to the throne in January, would foster quicker decision making and an improved environment for business and investment, said Mr Assad.

The kingdom would also continue to "activate private sector activity outside of oil" and push for the development of the country's financial markets to expand liquidity and the pool of investors, he added.

Saudi Arabia this week confirmed rules governing foreign institutions' entrance into the country's $590bn domestic stock market on June 15. The chairman of the Saudi market regulator told Tuesday's conference that as the kingdom seeks to attract more foreign institutional capital, it will consider more regulatory changes to develop domestic debt markets and facilitate initial public offerings.

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