RIYADH, (Reuters) – Top oil exporter Saudi Arabia will keep its public spending plans intact despite a recent fall in oil prices and its lenders will resume “normal business” this year after a difficult 2009, top officials said on Tuesday.
Finance Minister Ibrahim Alassaf said he was not concerned about a recent decline in crude prices and that the government’s spending programme would continue as planned.
“I don’t feel any concern at the moment … the global crisis and the tougher conditions we have been faced with last year saw oil prices at lower levels,” he said on the sidelines of a financial conference in the Saudi capital Riyadh.
“We will go ahead with the execution of projects planned under the government investment programme.”
Alassaf also told Al Arabiya television that he did not think oil prices would fall below $62 per barrel.
“Even if it did fall below $62, and I don’t think it will, we will continue with our development programme.”
Oil struggled more than a dollar higher to above $71 a barrel on Tuesday, recovering from a five-month low the previous session.
Saudi Arabia is investing $400 billion in the five years to 2013, mainly to boost infrastructure in the country of 26 million people.
Alassaf said the programme was running ahead of schedule and that more than half of the projected oil sector investment had been rolled out. Around 180 billion riyals had been spent on non-oil sector projects in 2009, he said.
The kingdom boosted public expenditure over the last two years to counter the effects of the global crisis, drawing on currency reserves that more than doubled due to substantial revenues from oil exports as crude prices rallied to record levels in 2008.
Strong demand had prompted the Saudi government to add 10 billion riyals ($2.7 billion) to its Industrial Development Fund, which extends soft loans to Saudi firms, bringing its total resources to 30 billion riyals, Alassaf said.
“We had already raised the fund’s capital to 20 billion riyals but because of strong demand the king has agreed to the support package,” he said.
Saudi Arabia had approved more than 650 contracts worth 40 billion riyals in the four months to the end of April, compared with a total of 126.9 billion riyals worth of contracts in 2009, he said.
The government had planned a 70 billion riyal deficit for 2010, based on a conservative oil price projection of $46 per barrel.
Alassaf said he was “still optimistic” about a possible surplus this year.
BANKS BACK TO NORMAL IN 2010
Speaking at the same conference, Muhammad al-Jasser of the Saudi Arabian Monetary Agency (SAMA) said banks in the kingdom would return to “normal business” this year and that economic conditions did not yet warrant a change in monetary policy.
“The fact that our banks have increased provisions is a sign of their ability to clearly recognise losses and hence strengthen their balance sheets for resumption of normal business in 2010,” Jasser said in a speech.
Earnings at most Saudi banks came under pressure in 2009 as a result of provisions against troubled family firms, and first quarter earnings were depressed by a slowdown in lending.
“Monetary policy has remained accommodative since late 2008, and monetary and credit conditions do not yet warrant a different course of action,” he added.
SAMA last changed the key repo rate in January 2009, when it cut it by 50 basis points to 2.00 percent. It also halved the reverse repo rate in June 2009 in a bid to discourage banks from placing money at its accounts.
Like most other Gulf Arab states, Saudi Arabia does not have a fully independent monetary policy as its currency is pegged to the U.S. dollar.
On inflation, Jasser added: “We are observing a modest increase in the domestic inflation rate linked to higher rental rates and food prices but monetary policy is not the appropriate response for such supply shocks.”
Saudi inflation climbed to a 10-month peak of 4.9 percent in April due to food and housing cost pressures, but it is seen staying in single digits this year.