The Saudi economy has the characteristics of a highly
cyclical resource-based economy. Private sector contribution to
GDP is correlated with government spending.
Vision 2030 seeks to diversify the economy away from
dependence on oil. The government is implementing broad
economic reforms, starting with revenue diversification via a
5% VAT as of January 2018, service charges and fees and a
correction in energy subsidies. Reforming the labour market is
an ongoing task, with its objective to provide jobs to a large
number of Saudis. Privatisation of state-owned entities is next
in the queue and should enhance the attractiveness of the
Growth in 2018 is projected at 1.9%, partly due to
expansionary fiscal policy and the SAR72 billion (approximately
$19 billion) stimulus package (amounting to 2.8% of GDP) for
the private sector.
Our monetary policy anchor is the USD/SAR pegged exchange
rate, and this has helped the economy grow with modest
inflation. The policy choice has worked well over decades,
given its compatibility with the economic structure.
The Saudi Arabian Monetary Authority (SAMA)'s mandate is to
maintain monetary and financial stability. Given limitations in
interest rate management, SAMA proactively uses the
macroprudential measures at its disposal. For instance, SAMA
altered the calculation methodology of the loan-to-deposit
ratio (LDR) to enhance number of saving products and hence
promote a culture of savings.
SAMA's supportive role in Vision 2030 for the economy
includes developing the financial sector and maintaining
SAMA's banking supervision has long adhered to the Basel
standards, which seek to promote international financial
stability through common international standards. Leverage
remains one of the principal concerns, as many banks that
failed during the global financial crisis had high leverage
levels (no Saudi bank failed during the crisis). Financial
soundness indicators for Saudi banks exceed the Basel
requirements and the outlook for our banks remains stable.
Saudi Arabia has recently passed a bankruptcy law, and
banking resolution (i.e. hierarchy of settlement for failing
banks) is still under discussion. The bankruptcy procedure lays
down a timeline to recover assets from defaulters. As for
SAMA's policy on issuing licences, it remains supportive of
granting licences to both new and existing foreign bank
branches to broaden the financial sector. We are open to
foreign banks' entry, provided they contribute to our economic
Banks and fintech are ideally placed to work together to
raise the quality of financial services. The shape of
tech-dominated retail banking is becoming clearer.
Fintech Saudi, launched in April 2018, will support
financial technology and help transform Saudi Arabia into an
innovative fintech hub with a thriving ecosystem driven by
local and international stakeholders. This will bring together
public and private organisations to foster a culture of
innovation, build a broad understanding about fintech and
support the growth in SMEs.