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Saudi going strong
The kingdom’s financial sector is reporting good numbers, and the central government is not reeling under any external debts. Analysts say that Saudi remains largely shielded from the financial crisis.
August 9, 2009 10:32 by Aarti Nagraj
Standard & Poor’s (S&P) Ratings Services has just affirmed its strong foreign and local currency credit ratings for Saudi Arabia: ‘AA-‘ for long-term and ‘A-1+’ for short-term.
“The ratings on Saudi Arabia reflect our view of the government’s extremely robust external and fiscal positions,” said S&P’s credit analyst Farouk Soussa. “Saudi Arabia currently enjoys an exceptional amount of fiscal flexibility to allow it largely to shield the local economy from the full impact of the global recession, primarily through the pursuit of expansionary fiscal policy.”
A World Bank report published recently also said that Saudi Arabia was the strongest Middle East economy in 2008. Riyadh’s gross domestic product (GDP) reached $468 billion last year (compared to $381 billion in 2007), making Saudi Arabia the 23rd strongest economy in the world.
According to S&P, foreign reserves and liquid foreign assets managed by the Saudi Arabian Monetary Agency (Sama) stood at $438 billion at the end of 2008 – that’s sufficient to cover about 24 months of current account payments. The kingdom’s central government also has no external debt.
Total deposits held by Saudi banks had grown to around $244 billion by the end of June 2009, according to BMG Financial Group’s Saudi Banking Sector Review. The review says that, in terms of banking assets, Saudi Arabia has the second largest total in the region, topped only by the UAE.
However, the report does acknowledge that the country has felt the impact of the economic slowdown. Banks in the kingdom posted a combined net income of around $8 billion at the end of December 2008, down 1 percent from 2007, while corporate lending growth fell 1 percent between December 2008 and March 2009 to reach $148 billion. Total credit facilities also dropped 1 percent between December 2008 and March 2009, to $197 billion.
Although S&P also predicts that Saudi’s fiscal output will weaken in 2009 because of falling oil prices and revenues, it says that the kingdom’s monetary reserves will balance the situation.
The BMG report foresees moderate growth in the short-to-medium term, and positive long-term prospects for Saudi’s banking sector.