Tuesday, May 6, 2008

Austerity for Saudi Kings- can it work?

Saudi Arabia’s central bank governor on Tuesday called on the government to fight inflation by curbing public expenditure, warning that economic policies in the kingdom faced “a critical situation”.

The call by Hamad al-Sayari followed a government announcement that it would invest in agricultural and livestock projects in foreign countries to ensure food security and control commodity prices....

Saudi Arabia’s oil-fuelled boom is producing massive investment in infrastructure projects but is also leading to growing social pressure as inflation spirals, reaching 9.6 per cent in March year on year. Although lower than in Qatar and the United Arab Emirates, the inflation rate is tormenting a country accustomed to near zero inflation.

Insisting that inflation is driven by domestic factors – mainly housing and foodstuffs – the central bank has resisted calls to drop the riyal’s peg to the dollar, thus limiting its ability to use monetary policy.

Powerful and contradictory factors put economic policymakers before difficult choices,” said Mr Sayari at a Euromoney conference, pointing to the need to promote economic growth but also the burden inflation was putting on low-income families.

The Saudi Arabian Monetary Agency [the central bank] has taken steps to reduce domestic liquidity by raising the statutory reserve requirement several times. Given the dominance of fiscal policies on the economy, it is necessary to reprioritise spending and programme it to fit the absorptive capacity of the national economy,” Mr Sayari added.

-Call to Saudis to curb spending

A Royal Order was issued on 28/11/1428H (8/12/2007) granting a subsidy of SR1,000 per ton on imported rice, and increasing the flat subsidy on baby milk from SR2 to SR12 per kilo.

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