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Saudi Arabia Economics

Source: Banque Saudi Fransi

Bearing the funding burden

Saudi state agency funds plug project financing gap left by banks

Saudi Public Investment Fund and other state entities taking more active role to plug gaps in project financing as bank credit lags

SAMA foreign assets witness December jump, deposits with foreign banks surge 25% in one month as state seeks to keep funds in liquid form

December slump in private sector credit likely seasonal but momentum behind credit revival to remain sluggish

Saudi debt perceived as least at risk of default in the Gulf

With banks and private sector businesses continuing to linger on the sidelines of Saudi Arabia’s infrastructure expansion project, the government appears ready and willing to continue employing its financial clout to keep vital infrastructure projects on track. Involving the private sector in the development plan has been a key government priority for years as part of efforts to strengthen the non-oil economy to reduce reliance on oil exports and create jobs.

But with private investors on their guard, bank credit touching new lows, and the cost of private sector credit still sharply higher than it was prior to the global financial crisis, the government has been compelled to take the lead role in paying for project work. In the past year, the state became the principal financier behind strategic projects across many core sectors, and it looks likely to bolster rather than undercut this strategy during 2010. As the principal investor in the economy, the state is shouldering the recovery effort, after succeeding in keeping the economy from slowing down more than it did in 2009.

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