2004 Speech

SAMA Governor's speech on presenting 40th SAMA Report
On presenting the 40th Annual Report of the Saudi Arabian Monetary Agency to Custodian of the Two Holy Mosques King Fahd bin Abdulaziz on October 26, 2004, SAMA Governor Hamad Al-Sayyari gave the following speech:

Custodian of the Two Holy Mosques:
It gives me great pleasure to present the fortieth annual report of the Saudi Arabian Monetary Agency. The report reviews the most prominent domestic economic developments in the Kingdom during fiscal year 1423-24 (FY2003) and also the developments so far in the current fiscal year 1424-25 (FY2004).

During FY2003 (1423-1424) the national economy continued to make good progress, for the second consecutive year. The nominal GDP grew by 13.7 percent compared to 3.0 per cent in the preceding year. This was attributable to the improvement in crude oil prices and expansion in private sector activity which increased by 4.4 percent. This growth was accompanied by remarkable improvement in the State Budget which recorded a surplus of SR 36 billion [U.S. $9.6 billion] compared to a deficit of SR 20.5 billion [$5.5 billion] in the preceding year.

This was the result of rationalization of expenditures and improvement in revenues, including non-oil revenues. The balance of payments denoted a surplus of SR 111.2 billion [$29.7 billion], the highest figure in over two decades, compared to a surplus of SR 44.5 billion [$11.9 billion] in the preceding year.

These positive developments were achieved in an environment characterized by domestic price stability, with the general cost of living index growing by only 0.6 percent.

Indicators such as these reflect the strength of the Saudi economy and its capacity to overcome the negative effects of the crises witnessed by the region, as well as the malicious terrorist explosions that have occurred in our dear country, that were aimed at undermining its social and economic stability and security.

During the current year, the national economy is making greater progress than it did in the preceding years in view of the current levels of crude oil prices, the continued expansion of private sector activity, and the continued improvement and development of the local investment environment. This development would not have been possible without the concerted efforts of both leadership and state officials.

Custodian of the Two Holy Mosques:
In pursuance of the Kingdom's ceaseless efforts to achieve sustainable economic development consistent with available resources and capable of confronting current and future challenges, your government continued throughout 2003 and during the current year to take a number of important decisions in the area of restructuring the national economy and updating laws. Also, the specialized councils took a number of decisions that contributed to supporting economic development. The Kingdom has made good progress towards accession to the World Trade Organization (WTO). These sincere efforts will contribute to enhancing the role of the private sector in the national economy, diversifying the economic and production base, and increasing job opportunities.

The Kingdom's oil policy has, since its foundation, constantly sought to meet world demand for crude and to achieve stability in global oil markets at favorable prices for the interests of both producing and consuming countries. Since mid-2004, oil prices have risen to relatively high levels despite the availability of sufficient oil supplies to meet world demand. The rise in oil prices was due to a number of factors beyond the control of OPEC. The high levels of oil prices are, however, contributing to enhancing the Kingdom’s oil revenues during the current year. A surplus in the State Budget is anticipated, and the bulk of this, as his Royal Highness the Crown Prince pointed out in an interview with the Saudi Press Agency, will be directed towards the repayment of the public debt. The remainder will be utilized to support diversification of the economic base and development of human resources, by increasing the capital of the Real Estate Development Fund and the Credit Bank, in addition to raising budgetary appropriations for the annual State Budget and allocating SR 30 billion [$8 billion] for the socio-economic sectors that directly affect the daily life of citizens in the various parts of the Kingdom.

I would like to stress that this endeavor to amortize the public debt will have a positive impact on the Kingdom's public finance position and macro-economic stability. I would also like to praise the efforts aimed at consolidating the State Budget and restoring the balance achieved in the previous year through rationalizing
and scheduling public expenditures. These efforts have enhanced the achievement of positive results in amortizing the public debt and have had their impact on boosting the progress of comprehensive economic development.

Custodian of the Two Holy Mosques:
In the successive five-year development plans, your government has paid considerable attention to the diversification of the economic base as a strategic option to achieve sustainable growth and stability in various sectors of the economy and gradually reduce reliance on oil as an important source of income and wealth. Marked achievements have been made in this area. The contribution of the non-oil sector to the GDP has increased, with non-oil exports and other revenues having risen notably. Manufacturing industries and agricultural production have developed. However, the accelerated economic and social development witnessed by the Kingdom requires acceleration of efforts aimed at increasing the private sector's contribution to economic activity. This is made possible by achieving balanced growth in various economic sectors, promoting and developing industries and small and medium enterprises, developing Saudi cadres, improving the climate and environment of domestic and foreign investment and accelerating the activation of privatization programs.

Custodian of the two Holy Mosques:
The employment of young Saudis is one of the most prominent challenges facing the national economy and the Kingdom’s decision makers. The challenge arises from many factors, such as the high rate of population growth, especially in the younger groupings, as well as the massive recruitment of foreign manpower, and the slow pace of compatibility of education and training curricula with the demands of the market. The Kingdom has succeeded in the Saudization of most government jobs and for a few years now has been gradually Saudizing jobs in the private sector. However, the results achieved so far do not yet meet with the cherished ambitions. Therefore, current efforts need to be intensified to set a long-term strategy for investment in human resources with the effective participation of both private and public sectors. Essential regulations for maintaining the rights of employees and employers need to be in place, and recruitment of foreign manpower needs to be rationalized. Furthermore, spending on human resources development projects and programs should be increased. The general technical and professional education programs should be streamlined, and the capacity of specialized institutions and colleges and universities needs to be expanded. Young people also need to be educated in the importance of respecting professionalism and discipline in work. The government's wise decision of establishing an independent Ministry of Labor, and increasing job opportunities and areas of work for women, have certainly highlighted the government’s determination to find suitable and effective solutions for these challenges.

Custodian of the two Holy Mosques:
It is a great pleasure for me to extend my congratulations to you on the issuance of the royal decree constituting the Capital Market Authority Board, a complementary step to the Capital Markets Law previously approved by the Council of Ministers. These decisions will contribute to the restructuring of the stock market to operate on new and more developed foundations. This will create and expand effective instruments for investing savings, and provide a regulatory framework for the implementation of all activities related to the security market, increasing its depth and enhancing its level of transparency. As a result of several factors, the share price index rose by 76.2 percent during 2003 and by 48.6 percent during the first nine months of this year. This will enhance the confidence of investors in the market and in the domestic economy. I would like to avail this occasion to call upon investors, especially new investors, to be fully aware of the sound foundations and principles of investment in stock companies and to be aware of the fluctuations from which security markets all over the world often suffer.

Custodian of the Two Holy Mosques:
In conclusion, let me review briefly the latest salient monetary and banking developments. The Kingdom's monetary policy has continued to maintain the stability of the national currency and domestic prices, and to ensure the soundness and strength of the domestic monetary and banking systems. This stability is an essential prerequisite for supporting economic growth. During the first nine months of 2004, money supply went up by 9.7 percent, and bank deposits increased by 11.1 percent. Commercial bank claims on the private sector rose by 27.5 percent. Moreover, banks enhanced their capital base, developed their banking services and intensified their use of modern technology. This contributed to an increase in their profits and a high solvency of 17.8 percent compared to the 8 percent prescribed by the Basel Committee. Furthermore, the Council of Ministers has issued its approval for a number of Gulf and international banks to open branches in the Kingdom, after ensuring the strength of the banking sector and its capability to accommodate new banks and cope with strong competition in providing modern and sophisticated financial and banking services.

May God bless you and guide your path to greater prosperity.