Saudi Arabia Central Bank Statement

Author: IFLR Correspondent | Published: 24 Sep 2019
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

The Saudi economy witnessed a recovery in 2018, reflecting the underlying momentum of growth as well as government initiatives designed to foster economic growth and business confidence. These initiatives were targeted in particular at the non-oil private sector.

Non-oil growth in 2018 was higher than in 2017 and is forecast to continue to strengthen in 2019, supported by government spending and Vision 2030 economic reform programs. Business confidence has improved. Unemployment fell to 5.7% at the end of Q1 2019, compared to 6.0% in Q4 2018. The development of the non-oil private sector and increasing financial development and inclusiveness should provide the basis for stronger, more sustainable and better-balanced economic growth in the future.

In terms of competitiveness, Saudi Arabia's ranking in the World Economic Forum Competitiveness Index has improved and the country now ranks 39th of 140 economies, with a particularly high ranking (equal first with 30 other countries) for macroeconomic stability.

In mid-2019, credit rating agencies reaffirmed their ratings: Moody's, A1 with a stable outlook; and Fitch, A+ with a stable outlook. Saudi Aramco's first public bond issue was rated A+ by Fitch and A1 by Moody's.

Reflecting the successful implementation of capital market reforms in line with Vision 2030, Saudi equity and bond markets are being included in international indices. This is expected to attract higher capital inflows that will stimulate economic activity and accelerate economic growth, which should further boost international investor confidence. FDI inflows picked up from a low point in 2017 and reached $1.2 billion in Q1 2019, compared to $829 million in Q4 2018.

Monetary policy continues to be anchored by the commitment to a stable exchange rate between the Saudi Arabian riyal (SAR) and the US dollar. Saudi riyal interest rates closely track dollar interest rates at low levels. The Saudi Arabian Monetary Authority (SAMA) actively uses a variety of macro-prudential and liquidity management tools to help ensure that financial conditions in the economy remain appropriate, within the context of the exchange rate peg.

The Saudi banking landscape is also undergoing changes, with one bank merger completed and another under discussion. These mergers will enhance the overall efficiency of the banking industry and create stronger institutions to compete in regional and international markets.

The Saudi economy, as with other emerging economies, is increasingly integrated with global financial markets. SAMA actively monitors both local and global markets to assess challenges that may impact domestic monetary and financial stability. It is undertaking various steps to foster a healthy and robust domestic banking system that can better support private sector growth, particularly in the SME sector. At the same time, SAMA is contributing to the development of technical infrastructure (for instance, in fintech) that will also benefit non-banking operators.

Financial deepening is high on the domestic policy agenda, with financial inclusion being an objective of the Financial Sector Development Program launched under Vision 2030. As part of the program, SAMA is working on a nationwide initiative to improve financial literacy.