The Saudi Arabian Monetary Agency (SAMA) today issued its 35th annual report, covering salient developments in the Saudi economy during 1998 and the first ten months of 1999.
The review said the performance of the Saudi economy in fiscal 1998 was affected by the sharp fall in world oil prices. Oil revenue and the value of the Kingdom's oil exports oil declined sharply, thereby increasing the budget deficit and causing a turnaround in the balance of payments position from a surplus in 1997 to a deficit in 1998. The economy nevertheless showed great resiliency in facing these developments. The private sector actually recorded growth, reflecting the diversity of its productive base and a lessening reliance on government expenditure.
The performance of the Saudi economy in 1999 is expected to be better than the previous year due to improvement in world oil prices, which will be positively reflected on the state budget and balance of payments.
On economic growth, the report said GDP in real terms grew by 1.6 percent during 1998, with both oil and non-oil sectors achieving growth rates of 2.1 and 1.2 percent respectively. The private sector registered a growth rate of 1.3 percent while the government sector grew at 0.9 percent.
On the situation of prices, the report said the cost of living index in the Kingdom continued to be remarkably stable in 1998. Latest available data show a fall of 1.4 in the average cost of living index during the first nine months of 1999 as compared to a decline of 0.2 in the same period of the preceding year.
The report said actual government revenue declined by 31.1 percent to SR 141.6 billion (U.S. $ 37.76 billion) at the end of 1998 because of the sharp fall in oil revenues. Actual government expenditure also fell, but at a lower rate of 14.1 percent to SR 190.0 billion (U.S.$ 50.67 billion). Consequently, the actual budget deficit went up from SR 15.8 billion (U.S.$ 4.21 billion) or 2.9 percent of the GDP in 1997 to SR 48.4 billion (U.S.$ 12.9 billion) or 10.0 percent of the GDP in 1998.
Estimates for the 1998 balance of payments indicate a deficit of SR48.2 billion (U.S.$ 12.85 billion) in the current account against a surplus of SR 959 million (U.S.$ 255.73 million) in non-oil exports, resulting from the steep fall in the prices of oil and petrochemical products in the international markets following the economic and financial crises in East Asia, Brazil and Russia. Oil exports (excluding bunker oil) declined by 37.2 percent to SR 125.2 billion (U.S.$ 33.39 billion) and non-oil exports by 15.4 percent to SR 23.4 billion (U.S.$ 6.24 billion) at the end of 1998. In contrast, the deficit in the services and transfers account narrowed by 26.3 percent to SR 93.7 billion (U.S.$ 29.99 billion). This reduced the effect of the decline in the value of exports on the current account.
SAMA reported that the rate of monetary expansion slowed down in 1998, with broad money (m3) registering an increase of 3.7 percent as compared with a rise of 5.2 percent in 1997. The main factors that contributed to the slow-down in the monetary expansion during 1998 were the net decline in government expenditure and the large deficit in the private sector's balance of payments. During the first ten months of 1999, m3 rose by 0.9 percent.
Regarding its monetary policy, the report said that SAMA is maintaining flexibility in line with market requirements and in close coordination with the government's fiscal policy, with the objective of stability in domestic prices and in the exchange rate of the Saudi Riyal.
During 1998, SAMA took two important policy measures that not only helped relieve pressure on the liquidity of the banks, but also provided support to the exchange rate peg and enhanced the attractiveness of government bonds. One measure was to equalize the percentage of the value of government securities eligible for repurchase agreements, by reducing the percentage for treasury bills from 75 to 35 and increasing that for GDBs and FRNs from 25 to 35. The other measure was a new procedure employing two rep rates, namely, the official rep rate (ORR) and the market-related rate (MRR).
The report went on to say that the official exchange rate of the Riyal remained stable at SR 3.75 per U.S. dollar during 1998, although fluctuating against other currencies within expected limits.
SAMA further reported that commercial bank claims on the private sector rose sharply, increasing by 20.2 percent or about SR 27.0 billion (U.S.$ 7.2 billion) to SR 160.7 billion (U.S.$ 42.85 billion) during 1998 as compared with the rise of 8.2 percent or SR 10.1 billion (U.S.$ 2.69 billion) in the preceding year. Banks scaled down their foreign assets and liabilities during 1998 by SR 13.6 billion (U.S.$ 3.63 billion) and SR 2. 9 billion (U.S.$ 0.77 billion) to reach SR 85.9 billion (U.S.$ 22.9 billion) and SR 43.1 billion (U.S.$ 11.49 billion) respectively at the end of December 1998. Consequently, net foreign assets declined by SR 10.6 billion (U.S.$ 2.83 billion) to SR 42.8 billion (U.S.$ 11.41 billion) during the year.
During the first ten months of 1999, however, banks increased their foreign assets by SR 3.2 billion (U.S.$ 0.85 billion) to SR 89.2 billion (U.S.$ 23.79 billion), and their foreign liabilities by SR 10.5 billion (U.S.$ 2.8 billion) to SR 53.6 billion (U.S.$ 14.29 billion). Thus, their net foreign assets decreased by SR 7.3 billion (U.S.$ 1.95 billion) to SR 35.6 billion (U.S.$ 9.49 billion) at the end of October 1999.
The report also said that commercial banks increased their capital and reserves during 1998 by SR 1.9 billion (U.S.$ 0.51 billion) to SR 40. 2 billion (U.S.$10.72 billion). Banks also raised their capital and reserves during the first ten months of 1999 by the same amount to SR 42.1 billion (U.S.$ 11.2 billion). Thus banks raised the ratio of their capital and reserves to their total bank deposits and their total assets from 17.0 and 9.9 percent at the end of December 1998, to 17.5 and 10.2 percent respectively at the end of October 1999.
The number of commercial banks in the Kingdom remained at 11 during 1998 of which three were Saudi-owned and eight had foreign participation. With the official merger of the Saudi-American Bank and the Saudi United Bank during the second half of 1999, the number of commercial banks operating in the Kingdom went down to 10; their networks amounted to 1,194 branches at the end of October 1999.
The report said the number of mutual funds managed by the commercial banks rose by 16.3 percent from 98 in 1997 to 114 in 1998. Total assets of these funds increased by 20.8 percent from SR 20.2 billion (U.S.$ 5.39 billion) in 1997 to about SR 24.4 billion (U.S.$ 6.51 billion) in 1998. The number of subscribers also increased from 63,300 in 1997 to 70,200 in 1998.
The number of ATMs increased from 1,591 in 1997 to 1,808 in 1998 and further to 1,942 at the end of September 1999. The number of ATM cards also rose from 3,052,058 in 1997 to 3,647,881 in 1998 and further to 4,507,124 at the end of September 1999. The volume of cash withdrawals through these ATMs went up from SR 46.5 billion (U.S.$ 12.4 billion) in 1997 to SR71.7 billion (U.S.$ 19.12 billion) in 1998 and amounted to SR 72.1 billion (U.S.$ 19.23 billion) in the first nine months of 1999. The number of sales terminals was 15,891 in 1998, but had declined to 15,856 by the end of September 1999. The volume of payments through OS increased from SR 41 billion (U.S.$ 10.93 billion) in 1997 to SR 5.0 billion (U.S.$ 1.33 billion) in 1998 and amounted to SR 4.6 billion (U.S.$ 28.51 billion) at the end of September 1999. Total payments through SARIE reached SR 5,246 billion (U.S.$ 1,298.93 billion) in 1998 and SR 4,815 billion (U.S.$ 1,284 billion) during the first ten months of 1999.
On the stock market, the report said that the number of shares traded went down by 6.2 percent from 314.0 million in 1997 to 294.6 million in 1998. The value of shares traded also declined, by 17.1 percent from SR 62.1 billion (U.S.$ 16.56 billion) to SR 51.5 billion (U.S.$ 13.73 billion). The share price index (1985 = 1000) decreased to 1,413.1 by the end of December 1998 as compared with 1,957.8 at the same time the preceding year, a decline of 27.8 percent over the year.
Noting the subsequent recovery of the stock market, the report said the total number of shares traded rose by 42.4 from 245 million to 349 million over the first nine months of 1999. The value of traded shares amounted to SR 39.2 billion (U.S.$ 10.45 billion) in 1998 as compared to SR 45.3 billion (U.S.$ 12.08 billion) in the same period of the preceding year, a drop of 13.5 percent. The market capitalization of issued shares rose by 13.5 percent to SR 193 billion (U.S.$ 51.47 billion) at the end of the first ten months of 1999 as compared to SR 170 billion (U.S.$ 45.33 billion) during the same period of 1998. The share price index stood at 1,710.73 at the end of October 1999 as compared with 1,494.20 during the corresponding period of the preceding year, rising by 14.5 percent.
On privatization, the report said that the first steps taken, following recommendations by a ministerial ad-hoc committee, were the setting up of the Saudi Arabian Mining Company, Ma'adan, a joint-stock company capitalized at SR 4 billion (U.S.$ 1.07 billion); and the transfer of Saudi Arabia's telephone utility to the private sector as the Saudi Telecommunications Company (STC). The report went on to say that work continues on implementing the privatization plan and programs of public utilities in the country through re-structuring the power sector and regulating its administrative and financial position with the aim of merging all the electricity companies.
In addition, approval was granted for establishing the National Company for Air Services (NAS), a limited liability private air company aimed at developing the air transportation sector and supplementing the activity of Saudi Arabian Airlines (SAA). Also, the Ports Authority is now completing the first stage of its privatization program for services at the existing ports by the year 2000. The Saudi government has also made initial steps to gradually privatize the postal services, and a joint study is underway for the transfer to the private sector of the Grain Silos and Flour Mills Organization.
On industry, the report said the number of industrial units in the Kingdom rose to 3,148 at the end of 1998, with a total capital of SR 232.1 billion (U.S.$ 61.89 billion). The units provided employment to more than 292,000 workers. Of these, 693 units produced chemical and plastic products; 560 units, construction materials, ceramic and glass items; 815 units, basic metal products and machinery; and 504 units, food and beverages.
On roads and telephone lines, the report said the total length of roads constructed by the Ministry of Communications amounted to 45,200 km at the end of 1998, of which 1,124 km were constructed during 1998. Work is underway on implementing an additional 3,900 km. The report said the number of telephone lines that were added during 1998 amounted to 297,600, raising the number of operating lines at the end for 1998 to 2.2 million. The number of public telephone lines, (card , private coin, public coin and private cabins) increased by 8,100 to 42,500 at the end of the year against 34,400 in the preceding year. The number of mobile phone lines rose at the end of the year to 630,000 from 365,000 in the preceding year.
On the development of human resources and social affairs, the report said the number of students (male and female) enrolled at government and private schools of general education increased to more than 3.87 million during the academic year 1998. The number of students enrolled in institutions of higher education also role to 296,500 during 1998. The enrollment at the colleges, institutions and vocational training institutes increased by 6.3 percent to reach 37,970 in 1998.
As for the growth in the health sector, the report said the number of hospitals operating in the Kingdom at the end of 1997 went up to 303 of which 180 belonged to the Ministry of Health, 39 to other government bodies, and 84 to the private sector. The number of primary health care centers belonging to Ministry rose to 1,737 while those belonging to the private sector stood at 611. The total number of beds at the Kingdom's hospitals stood at 44,200 at the end of 1997 against 42,600 in the preceding year. The number of physicians working in all health sectors in the Kingdom amounted to 30,400, of whom 19.9 percent were Saudis. The number of firms covered by the social insurance system at the end of 1418 H (March 26, 1998) rose by 21.3 percent to 24,026 (including 1,176 public corporations) as compared to 19,808 in the preceding year. The number of workers covered by the system stood at 2,538,940 at the end of 1418 against 2,512,554 at the end of the preceding year.
On population and manpower, the report said the Kingdom's population during 1997 rose by 2.2 to 19.26 million. The total civilian work force in the Kingdom stood at 7.2 million in 1996, of whom 2.5 million were Saudis. The majority of the work force was in the private sector. The construction and building sector accounted for 15.4 percent of the total work force, and the industrial sector, 8.2 percent.