2003 Speech
 

11/02/2003
Speech by SAMA Governor Hamid Sayyari on presenting to Custodian of the Two Holy Mosques King Fahd Bin Abdulaziz the 39th annual report of the Saudi Arabian Monetary Agency

Custodian of the Two Holy Mosques:

It gives me great pleasure to present to you the thirty-ninth annual report of the Saudi Arabian Monetary Agency. The report reviews most prominent economic developments for fiscal year 1423/24H (2003).

During 2002 and the current year so far the Saudi economy has made considerable progress, despite the adverse circumstances prevailing in the Arab world. The 2002 growth rate of the nominal GDP stood at 2.8 percent, mainly attributable to an expansion of 4.0 percent in the economic activity of the private sector. The oil sector also grew by 2.5 percent due to favorable crude oil prices.


What is more significant is the fact that the growth of the economy has been achieved within a non-inflationary environment. The general cost of living index dropped by 0.6 percent during 2002. The surplus in the balance of payments went up to SR 44.5 billion [U.S. $ 11.88 billion] from SR 35.1 billion [$ 9.37 billion] in the preceding year, while the deficit in the budget was down from SR 27 billion [$ 7.21 billion] to SR 20.5 billion [$ 5.47 billion]. This reflects the strength of the Saudi economy and its ability to overcome the negative effects of the crisis witnessed by the region. Greater progress in the national economy is expected in 2003 than in the previous year because of the stability of oil prices at favorable levels for both producers and consumers, and the government's continuing process of introducing regulatory and structural reforms in the national economy.

Custodian of the Two Holy Mosques:

It is my pleasure to congratulate you on the important decisions taken recently that will support and enhance the growth of the Saudi economy. Among these decisions is the issuance of a royal decree restructuring a number of ministries. The Council of Ministers has also approved, among others, the Capital Markets Law, the Insurance Law, and the Anti Money Laundering Law. There is no doubt that these decisions are complementary to institutional measures already undertaken by the government, such as the establishment of specialized councils, approval of a number of commissions and regulations, and privatization of certain public economic activities. These measures have effectively contributed to preparing the domestic economy for meeting the challenges of the coming era.

Custodian of the Two Holy Mosques:

The stability of crude oil prices at favorable levels for both producers and consumers, and the tangible success of efforts aimed at controlling public expenditure and restoring balance in the State budget are achievements that augur well for the Kingdom. They will help reduce public debt, enhance economic growth rates and create adequate job opportunities for the Kingdom's citizens. What is required, however, is attaching further priority to the efforts aimed at developing an appropriate mechanism for amortizing the public debt and maintaining fiscal balance through rationalization and scheduling of public expenditures, and increasing the volume and channels of non-oil public revenues.

Custodian of the Two Holy Mosques:

The Kingdom, through its development plans, has made great strides in diversifying the productive base of the economy as a strategic choice for supporting sustained economic growth. The Kingdom has also continued to work on various tracks for improving the environment and performance of the nation's economy and its institutions, both public and private, and for enhancing investment in modern technology and in national human resources. However, the accelerated changes witnessed on the domestic and international economic fronts will require continued work to enhance the participation of the private sector in the development efforts.

Custodian of the Two Holy Mosques:

Over the past years, your government has exerted fruitful efforts in implementing the privatization program of a number of public institutions. The success of this program will certainly help reduce fiscal burden on the State budget, improve the utilization of available resources and upgrade the quality of services.

Moreover, it will enhance the opportunities for private investment, both domestic and foreign, in important sectors such as telecommunications, electricity, water, transport and communications. In this context, I would like to praise the successful experience of floating part of the shares of the Saudi Telecommunication Company for public subscription. This will encourage similar steps to be undertaken in the near future. In particular, it is hoped that the new Capital Markets Law will contribute to the enhancement of efforts exerted for the success of the Kingdom's privatization program.

Custodian of the Two Holy Mosques:

Saudi society is characterized by its high population growth rate, especially in the category of young people. As a result, the annual number of young people entering the labor market has increased at rates higher than those of new job opportunities, creating thereby a challenge to economical and social development. This issue has preoccupied officials in the various sectors, notably the Manpower Council, education and training institutions, and the chambers of commerce and industry. Therefore, the development of education and training curricula that meet labor market needs, has been accorded special attention by your judicious government. This will help prepare young people to undertake the jobs required by the sectors of the modern economy.

Let me now review briefly the salient monetary and banking developments included in the thirty-ninth annual report of the Saudi Arabia Monetary Agency. During 2002 and the current year so far, the Kingdom's monetary policy continued to maintain the stability of the national currency and domestic prices and ensure the soundness and strength of the domestic banking system. This stability is an essential prerequisite for achieving sustainable economic growth.

During the first three quarters of 2003, money supply went up by 4.1 percent and bank deposits increased by 4.8 percent. Commercial bank claims on the government and private sectors rose by 10.8 percent. Moreover, banks enhanced their capital base, concentrated on high-return and low-risk assets, developed their banking services and intensified their use of modern technology. This contributed to an increase of 5.0 percent in their profits and a high Capital Adequacy ratio of 18.7 percent compared with the 8 percent prescribed by Basel Committee. The domestic share market continued to perform well for the fifth consecutive year, reflecting great optimism about the domestic investment climate. The share price index rose in the first three quarters of 2003 by 61.1 percent. Based on the strength of the Saudi economy and its banking and financial sector, the international rating agency of Standard and Poors has granted the Kingdom an (A+) rating for national currency debt and an (A) for long-term foreign currency debt. These are high ratings, compared internationally and regionally.

In this context, it is my pleasure to praise the enactment of the Capital Markets Law, which represents a significant qualitative leap in the history of the Kingdom's bourse. The law will contribute to restructuring the Saudi capital markets on new and sound foundations that broaden the base, enhance confidence, attract investments, and provide integrated regulatory references on the most important principles, foundations, and provisions covering all the aspects of the market. The Saudi Arabian Monetary Agency, in cooperation with commercial banks, has endeavored over the last decade to prepare an adequate basis for the enhancement of this law by employing and training the best national human resources and introducing the latest international electronic systems.

Custodian of the Two Holy Mosques:

In conclusion, I would like to commend the successful cooperation of government and private entities that have provided SAMA with the necessary information for preparing this thirty-ninth annual report. Also, I would like to call upon all government and private entities for further disclosure of data and information that would play a crucial role in helping officials at government and private sectors to take proper economic and investment decisions. This is actually in harmony with the Council of Ministers' approval of periodic and regular publication of financial and economic data, reflecting their importance in supporting economic and social development and developing the data base of the Kingdom.

May God bless you and guide your steps to greater success.

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