The IMF also pointed out to the positive outlook of the Saudi economy which grew by 5.1 percent in 2013, benefitting from high oil prices and output, strong private sector growth, and government spending.

This came in a press release issued by IMF Executive Board after it concluded 2013 Article IV Consultation with Saudi Arabia.

Credit growth has remained strong, and the banking system is well-capitalized and profitable, with (Basle III Capital Standards) implemented in January 2013. Following an expansionary fiscal stance in 2011, government expenditure growth slowed in 2012 and the non-oil deficit began to narrow. Consistent with the exchange rate peg, monetary policy settings have remained unchanged.

Inflation has risen over the past year to 3.8 percent in May 2013, driven by higher food prices and housing costs. High oil prices and production led to large fiscal and current account surpluses, and international reserves rose further. Looking ahead, growth is projected to slow to 4 percent in 2013. Private sector growth is expected to be strong, but oil production is likely to be below 2012 levels while government spending growth may slow.

Inflation is expected to ease toward year-end in line with declining international food prices. With oil prices and production expected to be lower, fiscal and external surpluses, while remaining large, are projected to narrow this year.

The press release said the IMF Assessment Executive Directors also welcomed the continued strong performance of the Saudi Arabian economy and the systemic and stabilizing role that the country plays in the global oil market.

They also acknowledged Saudi Arabia’s role as an important source of financial assistance and remittances for many developing countries.

Directors welcomed the measures the Saudi authorities have undertaken to strengthen fiscal management.

The Saudi population is young and increasingly well-educated, and as it continues to enter into its working-age years, there is a tremendous opportunity to boost growth and raise living standards further.

Against this background, the government is continuing to implement initiatives to boost the employment of Saudi nationals, increase the supply of housing, improve infrastructure, particularly in the area of transportation, and develop the small-and medium enterprise (SME) sector.

IMF Directors welcomed the large investments in education aimed at strengthening the skills of the population.

The new company is based in Riyadh as a closed joint stock entity and 70 percent of its capital has already been paid up by its founding members. Its 10 million equities are each of SR 10.

The company will invest in farming and establish agricultural projects for crops such as rice, barley, fruits, olives, vegetables, cattle feed and all other agricultural products.

A ministry statement said its decision is part of the government’s policy to boost economic activities in various sectors by raising the competitiveness of the national economy in order to face regional and international challenges, the ministry said in a statement.

The announcement came as Agriculture Minister Fahd Balghonaim told a conference in Riyadh that his ministry was keen on cooperating with Saudi private investors to strengthen the King Abdullah Initiative for Agricultural Investment Abroad.

Highlighting the Kingdom’s efforts to ensure food security, Balghonaim called on investors to take full advantage of the loans and other facilities provided by the Agricultural Development Fund (ADF) to finance Saudi farm projects outside the Kingdom.

“The factors that have encouraged investment in farms abroad include the need for increased food commodities to cope up with the needs of the growing population and urbanization,” Balghonaim said at the second Forum for Agricultural Investors Abroad.

The minister pointed out that Saudi Arabia had started running farms abroad to strengthen its national policies to counter the challenges faced in terms of food security.

“The policy involves building up a strategic reserve of staple food resources in the Kingdom,” the minister said, adding that the farms will focus on seven crops.

The ministry has set up an action team to undertake the successful implementation of the initiative.

“Over the past several years a number of wealthy countries importing food have been showing increasing interest in running agricultural farms of their own in countries that are rich in agricultural resources and have welcomed foreign investments,” the minister said.

“The ministry is working in coordination with Saudi embassies abroad to sign framework agreements to protect Saudi investments with the countries where such farms will be established,” the minister said and assured that Saudi investors’ interests will be protected.

The action team has completed identifying the target countries for investments and the crops that could be raised in those countries in addition to making framework agreements with those countries for collaboration in agriculture, and livestock and marine resources, he said.

The ministry is also coordinating with the ADF for financing the projects and with the Saudi Agricultural and Livestock Investment Co. for investments.

He stressed that a number of Saudi agricultural investments in Africa, including Egypt, Sudan, and Ethiopia, had produced fruitful results.

Khaled Al-Muqairen, deputy chairman of the Riyadh Chamber of Commerce and Industry, said the forum would also present the experience of some Saudi agriculture investors in foreign countries.

The presentation will enable the participants to learn about the difficulties and challenges that the investors might face and also the ways to ensure the protection of their investments in those countries.

Asked whether strong growth in government spending was sustainable, Al-Assaf told reporters: “We have the … ability to continue this scale of spending.

“We have the reserves, as well as we are reducing our debt almost to zero. So we can continue in the medium term and even beyond that,” Reuters quoted Al-Assaf as saying.

The world’s No.1 oil exporter has set a record state budget of SR 820 billion for 2013, 19 percent higher than the amount budgeted for 2012.

The 2013 budget estimates revenues at SR 829 billion and expenditures at SR 820 billion, projecting a surplus of SR 9 billion. The budget will continue to emphasize both human and physical capital expenditure to support sustainable and balanced growth.

The National Commercial Bank said in its budget analysis that it projects total revenues at SR 1.15 trillion and expenditures at SR 870 billion, predicting a surplus of SR 277 billion in 2013.

Despite many MENA nations’ commendable efforts so far, the supply of affordable housing is falling far short of demand, and demand is rising.
The report, which will be unveiled at the upcoming Jeddah Economic Forum 2013, highlights that the widening gap of effective demand over affordable housing is proof that governments’ existing frameworks will need greater support in the years to come. The forum’s key theme ‘Housing the growing population’ will center on solutions to the housing issue and recommendations for government bodies to be able to address this.

Affordable housing delivery requires government contribution but government cannot tackle the challenge on their own. Both supply-side and demand-side strategies can mobilize the private sector and hence, make government resources go further. Housing affordability lies at the intersection of supply side (more homes) and demand side (more financing), and to tackle the growing crisis, MENA governments need to engage the private sector on both sides simultaneously.

Bassam Hage, MENA Markets Leader, Ernst & Young, said: “Most public sector initiatives to date have been on the supply side – the direct creation of affordable homes – but increasingly, forward thinkers in MENA are looking for demand-side innovations, which can help citizens find ways to secure affordable housing and also reduce public sector administration and costs.”Analysis of housing affordability, as measured by “residual income” (household budget available after paying for housing) shows wide variation, with UAE and Qatar achieving higher levels of housing affordability for nationals, while citizens of Saudi Arabia and Yemen have very low residual incomes.

Ahmed Reda, Office Managing Partner, Ernst & Young Jeddah, says: “There is an increasingly marked imbalance between rising wealth creation, on the one hand, and delivery of new homes and desirable living environment on the other. It is essential that MENA’s public and private sector leaders work together and align their strategies to arrive at sustainable solutions to a growing issue.”

The time for policy action in MENA is now, because the region’s countries are entering what the United Nations calls the “demographic window of opportunity,” representing an unprecedented period of new household formation. It is measured by the ratio of prime-earning adults (people between 16 and 64) to housing dependents (children under 16 and the elderly of 65 and over). When a nation has a “worker’s bulge,” it will rapidly form new households, and those households will want to consume more and better housing.

Ahmed added: “The demographic window for a country in MENA will typically last for about 35 years; that is the moment of opportunity that MENA countries will have to move beyond emerging market status. To do this, they will require large numbers of quality, urban, affordable homes for people to own or rent.”

This is especially urgent in MENA now, because their populations are growing at two or three times global averages. By 2050, the populations of Bahrain, Egypt, Iraq, Jordan, Kuwait, Mauritania, Oman, Saudi Arabia, Syria and Yemen are projected to more than double — and all of this net growth will be in cities, because people in these countries are moving, rural-to-urban.

Although affordable housing requires some elements of subsidy or government assistance, there is also the need for some fundamental efforts to help lower the sale price of a home to something lower-income households can afford. Interestingly, these efforts are all within the ability and mandate of the government. There are five key ways of tackling the issue, which include: land allocation, land taxation and release, streamlining of approvals, modernizing planning and building regulations and managing expectations.

If recent history is anything to go by, actual spending will above budgeted level, says Jadwa Investment.  The government’s actual spend has been an average 24% higher than budgeted in the past ten years.

HSBC expects the good times in Saudi Arabia to continue as triple-digit oil prices will continue to ensure surpluses, although growth will moderate from 5.3% in 2012 to 4.3% in 2013 and 3.7% in 2014. “The surpluses should persist despite further growth in public spending, which we expect to exceed USD275bn in 2014 – roughly double the 2008 total and three times the level recorded in 2005,” said HSBC economist Simon Williams, in a report.

“This highly expansionary fiscal stance will be the core driver of growth in the non-oil sector, boosted by the expansion in domestic credit and the acceleration in household formation associated with the kingdom’s overwhelmingly youthful population.”  However, the public outlays means the Kingdom’s budget breakeven oil price to over USD95 per barrel in 2014, according to HSBC, which could hurt the government if crude prices fall for a sustained period of time.

Meanwhile, Fitch projects that the Kingdom’s breakeven oil price will rise to USD74 b in 2013 (assuming oil production of 9.7 million bpd) up from USD68 per barrel in 2012 and just over USD40 per barrel in 2008. While the economic prospects look rosy, the political aspects are cause for concern.

“Political risks will continue to weigh, as regional tensions persist and uncertainties over succession within the kingdom come into focus,” said Mr. Williams. “More broadly, policymakers are aware that they must look to accelerate and deepen the build-out of the non-oil economy and reduce dependence on oil if Saudi Arabia’s long-term prosperity is to be assured.”
Meanwhile, it is also important to remember that the economy remains heavily dependent on government spending.

“This spending will be affordable, but the economic growth such vast spending will generate will not be spectacular,” says Jadwa’s Mr. Turki in a report.