MENA Asset Management Survey 2012 - National Bank of Abu Dhabi

Saudi Arabia
Economic Background
High oil prices support fiscal expansion necessary for job creation
Saudi Arabia’s economy grew by 6.8% in 2012, down from 8.5% in 2011. Growth in the
last two years was at the fastest pace since 2003. Nominal GDP rose to US$ 727 billion
on the back of higher oil prices, production -with the latter rising significantly to offset the
decline in Libyan oil supply in 2011 and Iranian output in 2012 -, and government
expenditures in response to regional turmoil.
The trade balance registered a record surplus of US$ 268 billion (37% of GDP) in 2012.
Record oil exports pushed total exports to US$ 396 billion (+9% y-o-y), outpacing the 8%
jump in imports. The current account surplus jumped from US$ 67 billion (12.7% of GDP)
in 2010 to US$ 178.5 billion (25% of GDP) in 2012. Central Bank FX reserves have risen
sharply to US$ 643 billion (+21% y-o-y) at end-November 2012.
High oil prices support fiscal expansion
Fiscal policy remains expansionary in response to regional unrest. Non-oil balance is
estimated to have registered a deficit of 28% of GDP in 2012. The non-oil deficit in
absolute terms is forecast to rise through the next three years. IMF projects that the price
of crude that is needed to balance the government budget will rise to US$ 98 per barrel
by 2016. Our fiscal breakeven estimate is somewhat lower than the IMF figures, but
agree on the path. The fiscal breakeven is estimated to have declined to around US$ 70
per barrel in 2012 because of higher than expected Saudi oil production to compensate
for the decline in Iranian sales due to sanctions. The budget registered a surplus of US$
103.1 billion (14.2% of GDP) in 2012 and is expected to register a surplus of US$ 77.1
billion in 2013 (10% of GDP).
The stimulus packages that were unveiled in response to regional unrest provided new
impetus to credit growth. Annual loan growth has accelerated from single digits in much
of 2011 to 15.7% y-o-y by November 2012, driven by loans to the private sector which
were up by 15.4% y-o-y. Government passed a new law on mortgages in early July and
this is expected to clarify foreclosure procedures and stimulate bank lending against