Saudi Arabia: Key developments

FROM THE ECONOMIST INTELLIGENCE UNIT

Outlook for 2008-09

No fundamental threat to the rule of the Al Saud family is expected over the outlook period. Some reforms will be introduced, but they will be limited by the Al Saud's desire to maintain power, internal unity and clerical support.

The rising cost of living will be a source of discontent, along with unemployment and perceived corruption. The government will increase spending in an effort to alleviate the impact of inflation and unemployment.

Saudi Arabia will remain concerned about Iran's nuclear programme, but it will seek to maintain an outwardly cordial relationship.

Economic growth will remain robust in 2008-09, largely driven by strong government and foreign investment, and by a gradual pick-up in oil output.

High international oil prices will generate large current-account and fiscal surpluses despite surging import spending and an expansionary fiscal policy. The government will increase subsidies and public-sector pay.

Inflation will rise to an average of 11.3% in 2008-09. The Economist Intelligence Unit believes that there is a 30% chance of a currency revaluation taking place, which would only temporarily address inflation.

Monthly review

The Ministry of the Interior has announced that it has arrested 701 people over the past six months on suspicion of involvement in terrorism.

The long-awaited mortgage law has been passed by the Majlis al-Shura (consultative council).

The justice minister has said that a plan of action for implementing judicial reforms approved last year has been completed.

Saudi Aramco, the state oil company, maintains that its plan to increase oil capacity to 12.5m barrels/day by end-2009 is on track, despite delays in starting up the Khursaniyah field.

Fresh GDP data issued by the Saudi Arabian Monetary Agency (SAMA, the central bank) indicate that the non-oil private sector continues to expand strongly.

The current-account surplus dipped slightly in 2007 as a result of a sharp increase in imports.

Inflation eased marginally in May, compared with the previous month, but is still running in double digits.