RIYADH: Saudi Arabia is set to boost its infrastructure spending by about 15 percent in 2011 from the estimated $70 billion spent this year, Standard Chartered bank said in its "Global Focus – 2011 - The Year Ahead," report. Saudi Arabia's fiscal policy (in the form of government spending) will remain a key driver of the country's economy, the report said. "We expect fiscal dynamics to be expansionary in 2011, underpinned by population growth dynamics and the government's commitment to follow through on infrastructure investments," the bank said in the report. The bank also expects the Kingdom's fiscal spending to be almost five per cent higher than the previous year's fiscal budget ($125.3 billion), with infrastructure-related expenditures ($70 billion) increasing about 15 percent from 2010. Higher oil prices and government commitments under the five-year development plan are key factors behind these estimates, it added. "We believe the move towards infrastructure-driven spending is healthier for the Saudi economy than hydrocarbon-driven growth, given the better filter-through effect of such spending to the real economy," Standard the report said. "Even where spending is allocated to the energy sector, it will be concentrated in the downstream sector. This is positive, as it will create jobs for Saudi nationals due to the labor intensity of the sector," it said. The Saudi banking sector remains robust, with loan-to-deposit ratios below 85 percent. This means banks have the capacity to lend and, unlike some banks in the region, they are not challenged by the structural problem of high loan-to-deposit ratios. The World Bank has ranked Saudi Arabia as the world's 11th most competitive country in its latest "Doing Business" survey, 17 steps ahead of the closest competitor in the Middle East. "We expect Saudi Arabia to maintain its leading position in 2011, although competition is building from the UAE, Qatar and Bahrain." The report further said the Kingdom's economic growth will surge to four percent in 2011 from three percent this year, mainly driven by massive capital investments in key strategic sectors and infrastructure. Hydrocarbons are the biggest drivers of economy, at 27 percent of GDP, followed by government services (18 percent), manufacturing (12 percent), financial services (11 percent) and construction (7 percent), the bank said in its latest forecast. “We expect OPEC quotas to continue to cap hydrocarbon production in 2011. As a result, the two key growth drivers will be diversification related spending (mainly infrastructure) and development spending in the hydrocarbon sector, both downstream and upstream.” In 2010, the Saudi cabinet had approved a $385 billion spending program for the 2010-14 period, largely allocated to infrastructure and social services. However, a key challenge for Saudi Arabia will be the level of domestic oil consumption, which has grown at an annual rate of 5.9 per cent over the last five years, the report stated. The head of the state oil producer has event warned that the country's crude oil exports could begin declining as early as 2011, it added. About the other GCC states, Standard Chartered report said "there was a slowdown in infrastructure spending in Qatar and Abu Dhabi. But the momentum is likely to pick up again in the next three years, as several of these projects, including roads and railways, were delayed but not cancelled." "We are positive on the longer-term outlook for infrastructure investment in Qatar. The government plans to spend close to $20 billion on new roads and transport infrastructure over the next five years, and a $36 billion metro system is in the pipeline." The country is also building a $11 billion airport and a $5.5 billion deepwater seaport, it said. Qatar's economy was likely to benefit in the short term from higher infrastructure spending as the country gears up to host the FIFA World Cup in 2022, the Standard Chartered said in the forecast.
