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Kingdom's trade balance surplus to reach SR915bn.

Summary: Since oil plays an overwhelming role in Saudi Arabia's economy, it figures that oil receipts and hence the current account plays a dominant role in the balance of payments account. Unlike 2009, the transfer of capital for portfolio and other investments, the reserve assets and direct investment led to a net outflow in capital and financial account during 2010. Due to a surge in oil prices in 2010, the dramatic drop in current account surplus in 2009 has recovered past stature, growing over 3 folds during 2010, according to a report by Global Investment House (Global).

As per our expectations, the current account and trade balance surpluses that dipped in 2009 experienced an impressive recovery in 2010 with current account & trade balances estimated reaching SR250.3 billion & SR576.4 billion respectively in 2010. The same are expected to increase by 139 percent and 59 percent respectively in 2011 to reach SR598 billion and SR915 billion respectively. Both the current account and trade balance surpluses, in terms of GDP, stood at an average (2000-10) of 16.7 percent & 32.7 percent, respectively. Despite the continued economic expansion, the current account surplus is projected to increase from 15.4 percent in 2010 to 31.1 percent in 2011, and trade balance surplus to rise from 35.4 percent in 2010 to 47.6 percent in 2011. Current account Oil exports account for 85 percent to 90 percent of the total exports and have an overwhelming impact on the current account balance. Oil prices rebounded strongly in 2010 after exhibiting weakness in 2009, as such reflected in the surge in the current account during the year. With a further rise in both oil prices and volumes Saudi Arabia's current account surplus is estimated to more than double in 2011 to SR598 billion. The deficit in service balance is not expected to change as it mainly reflects the payments for insurance, freight & other services, and Saudis travel abroad. With dominance of trade balance & its projected increase, the current account surplus is also expected to rise in 2010. The current account surplus to GDP that averaged around 27.0 percent, with Arabian Light oil at SR72 over the four years period (2005-08), dropped from 27.8 percent in 2008 to 6.1 percent in 2009. The expected higher oil prices in 2010 will lead to improved current account surplus position that is believed to further strengthen in 2011. Exports The softening of oil prices and consequent reduction in oil production during 2009, led to annual decline in oil exports by 41.2 percent, while overall exports decreased by 38.7 percent. The rising optimism in global economic recovery along with other market factors drove the oil prices higher in 2010. The Kingdom's total exports are expected to post an annual increase of 23.0 percent reaching SR886.3 billion, while oil exports and nonoil exports are estimated to record a rise of 23.0 percent and 22.6 percent, respectively in 2010. The composition of exports indicates dominance of mineral products (mainly oil) constituting an average (2005-09) of 88 percent of total exports. The mineral products category posted rising trend with an average (2006-08) growth of 20.8 percent, till it dropped sharply in 2009. The other major exports like chemical products, plastic products & re-exports only constitute 4.1 percent, 3.3 percent, & 3.3 percent, respectively, of the total exports in 2009. The Global report said trade balance (as percent of GDP) at an average (2005-08) of 41.2 percent, after experiencing drop to 28.0 percent in 2009, is expected to increase to 34.2 percent in 2010. Both imports and exports continued to increase over the last decade. However, a faster annual decline in exports by 38.6 percent as compared to imports decrease of 16.8% resulted in trade balance decline of 50.4 percent in 2009. The trade balance is projected to post an increase of 41.4 percent in 2010. Imports The consistent increase in imports over last half decade at an average rate of around 23.0 percent witnessed a decrease of 17.0 percent in 2009 and is expected to record marginal increase in 2010. The import base mainly dominated by machinery, appliances, electrical equipment and parts thereof, recorded annual decrease of 12.1 percent. The decline in this category could be attributed to relatively lower domestic consumer and industrial demand, in the wake of overall dampened global economic environment. However, in terms of its share in total imports the category recorded an increase from 27.2 percent in 2008 to 28.8 percent in 2009. The other main category of transport equipment, optical and other instruments witnessed a drop in its share from 18.0 percent in 2008 to 17.4 percent of total in 2009, and posted annual decrease of 19.8 percent. The base metal and articles of base metals composing 11.0% of total imports recorded largest decline of 40.1 percent in 2009. Having said that, the highest annual increase of 26.1 percent was posted by arms, ammunition and parts thereof, which only constituted 0.9 percent of total imports during 2009.

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Publication:Arab News (Jeddah, Saudi Arabia)
Date:Mar 11, 2012
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