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Middle EastNovember 1 2011

SAMA chief focuses on domestic developments

Muhammad Al-Jasser, the governor of Saudi Arabian Monetary Agency, says that while the country's role within the wider Middle Eastern and global economies is an important one, in times of such financial anxiety, it is important to focus on domestic matters.
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SAMA chief focuses on domestic developments

In looking at the issues and challenges facing the Saudi financial system, Muhammad Al-Jasser, governor of the Saudi Arabian Monetary Agency, is adamant when he says: “Safeguard your own house first.” The governor insists that it is critical to be conservative, to increase capital and to have adequate capital.

Speaking at the International Monetary Fund/World Bank annual meetings in Washington, DC, in September, Mr Al-Jasser is keen to stress that Saudi Arabia does not operate in isolation, and that its oil policy is a responsible one that will have no shocks for the global economy. 

Global importance

Mr Al-Jasser believes that Saudi Arabia plays an important role within both the Middle East and the global economy. To back this up, he highlights the huge amount of financial remittances sent from workers in Saudi Arabia to neighboring countries as well as India, Pakistan, the Philippines and Bangladesh. He also points to the huge amount of Overseas Development Assistance coming from Saudi Arabia in 2011, which amounts to more than 1% of gross domestic product – much more than the United Nations average of 0.7%.

The governor notes that in the past, global economic problems have generally been restricted to one area – namely emerging economies – but now there are three areas of concern: the US, Europe and Japan. And as there is still a great deal of anxiety regarding the global economy, Mr Al-Jasser says that it is important for Saudi Arabia to safeguard its home market first.

He says of the troubled global regions: “Europe can do it but Europe needs the political will; it is capable itself and it does not need the rest of the world to help."

As for the Middle East, the Saudi model shows how to bring through oil price increases, alongside rises in household income, an improvement in health services and better job opportunities. Such developments encourage entrepreneurship, the quality of life in Saudi Arabia, and also plays a role in Saudi Arabia's economic development.

Demographic challenge

Mr Al-Jasser is keen to address the challenge of Saudi Arabia's population growth, which is being tackled by the huge expansion of housing and better facilities for house-buying. The governor says that the new mortgage law will help with this, but adds that the country's housing climate is already showing improvements with a growth in the mortgage market happening before the law is in place.

It pays to be conservative. Don’t be enticed by excessive returns, and while leveraging looks nice, resist the temptation and resist over-leveraging

Muhammad Al-Jasser

In terms of bank credit, the Mr Al-Jasser says that its growth is very healthy. But he believes the market needs to diversify and more financial opportunities need to be developed. “The Saudi corporate bond market is growing and will continue to grow,” he says, and a series of upcoming deals for companies such as Saudi oil company Aramco are expected to deepen the market.

Looking at economic growth in the country, Mr Al-Jasser expects Saudi Arabia to achieve 5% growth in 2011, and repeat this figure in 2012, despite the uncertainties that persist over the price of oil. He notes the importance of sticking to the basics. “It pays to be conservative. Don’t be enticed by excessive returns, and while leveraging looks nice, resist the temptation and resist over-leveraging,” he says.

Weathering the storm

Meanwhile, in its Article IV Consultation with Saudi Arabia, the IMF Executive Board, in August 2011, noted that policy and financial buffers, combined with prudent financial sector regulation, had allowed Saudi Arabia to weather the global slowdown well. The IMF report noted the near-term outlook for Saudi Arabia's economy is favourable. Over the medium term, it says policy priorities should focus on maintaining fiscal sustainability, securing broad-based growth and fostering job creation. IMF directors commended the Saudi authorities for their continued stabilising role in the oil markets. They noted the significant positive spillover effects of Saudi policies on the regional and global economies, including the provision of generous official development assistance.

IMF directors also commented that the supervision and regulation of Saudi Arabia's financial system by the central bank has been effective, as evidenced by the banking system’s resilience to recent shocks. Directors encouraged the central bank to continue to strengthen the regulatory and supervisory framework by aligning the legal framework with actual practice. They also commended the authorities for their strong efforts in combating money laundering and the financing of terrorism.    

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Read more about:  Middle East , Saudi Arabia