2010 will be the year of reassuring recovery for economy

The 2010 budget at its core gives a few important messages to the private sector and the world: Saudi Arabia is committed to its $400 billion fiscal stimulus program through 2013. It is willing to sacrifice its fiscal position by incurring a small yet manageable budget deficit but it would hold on to its course. Another message is that the state has to not only spearhead the country’s drive to sustainable development at least for now but also help the economy recover fast. As the private sector is now becoming half of this economy’s annual output (47.8 percent of the country’s GDP in 2009) it too has to increase its domestic investments. The state has to be recognized for doing its duty of spurring private sector growth. The private sector certainly needs to expand, invest and nationalize its work force more. Of great importance are the continuous efforts to build public-private partnerships and for the trickle down between government and private sector to unfold unfiltered in the years to come.

Saudi Arabia’s 2010 budget shows a strong commitment to spending to help create opportunities for the private sector to establish and ingrain the necessary human and infrastructure skills to keep the economy on a sustainable growth pattern. If last year’s budget was the largest in the history of Saudi Arabia then the latest one is again a first for the Kingdom. In fact, the 2010 budget is three times bigger than the one for 2005. The spending that Saudi Arabia has embarked on is being done with no debt created in contrast to many other G20 countries. The overspending that the Kingdom witnessed in its budget in 2009 was in line with the overspending of the past years. However unlike in 2008 when it overspent by 27 percent, this time the Kingdom overspent by 15.7 percent, which is close to average overspending patterns of the past few years. It seems that the authorities are also cognizant of the fact that there can’t be runaway overspending.

In 2010 the private sector will continue to recover as well as the rest of the economy. Definitely it would be a better year than 2009, which was challenging given that the global economy went through its worst recession in the past 50 years. I expect real GDP in 2010 to reach at least 4 percent and inflation to be around 4.6 percent. Inflation does not seem to be a problem for the moment but it is still high for an economy that witnessed close to zero percent growth.