Spending picks up in Saudi Arabia

The Finance Ministry of Saudi Arabia approved projects worth USD10.83bn in the first quarter of 2009, double the amount from Q1 last year. The minister of finance mentioned that the funds have been allocated to infrastructure, public services, education and health sectors. The minister also said that the current crisis was a “crisis of confidence” and that economic indicators supported an optimistic view of the economy.

Saudi Arabia has increased government spending significantly, especially on infrastructure projects and on social services. Higher expenditure will help pick up some of the slack in the economy in the short term. But there are also longer term benefits. Improved infrastructure and the focus on education can help create jobs for Saudi’s young population and can also improve productivity. GDP per head in Saudi Arabia is estimated at around USD19k, which is one of the lowest in the region. It is therefore important to note that the authorities are also using government expenditure to insulate the poorer part of the population from the impact of the economic crisis. Saudi Arabia has adopted counter cyclical policies, both on the fiscal and monetary policy fronts. With money supply growing by 15.8% y/y in March this year, liquidity is tighter than 2008, but still adequate. This should help Saudi Arabia to continue to grow in 2009.