Discussing the annual economic report on the Kingdom of Saudi Arabia, the International Monetary Fund (IMF) stressed that the macroeconomic performance in 2007 was strong as the real GDP grew by 3.5 percent, sustained by strong and broad based private non-oil sector growth (6 percent), especially in construction, retail trade, transportation and communication services despite the fact that inflation accelerated during 2007 and reached a historical high of 10.5 percent year-on-year in April 2008 driven by domestic demand pressures (especially rents) and higher import prices (mostly food). This came in a press statement issued by the World Bank today containing the results of the Executive Board of the IMF's discussion of the Article IV consultation with Saudi Arabia. In its statement, the bank said, "Higher oil prices contributed to a large current account surplus of US$96 billion (25 percent of GDP) despite a surge in imports. The surplus was used to build up the net foreign assets (NFA) of the central bank US$301 billion (19 months of imports). "The fiscal surplus declined to 12.3 percent of GDP due to higher-than budgeted spending and to a temporary decline in the proportion of oil receipts transferred from the state oil company (Saudi Aramco) to the budget owing to higher investment spending. Spending was driven mainly by capital expenditures and a higher wage bill. "Monetary policy was accommodative, given the peg to the U.S. dollar, and despite efforts to sterilize the build up in NFA. Broad money grew by 20 percent in 2007, similar to 2006, but private sector credit growth more than doubled to 21.4 percent. The central bank sought to contain the expansion in monetary aggregates by raising reserve requirements in late 2007 and early 2008. Speculation for a revaluation of the riyal emerged in 2007 and was reflected in forward premia in offshore futures markets. --more
