The effects of the global financial crisis in the Saudi economy

Certainly affect the global financial crisis in the world economy as a whole, there is no longer an economy free from the impact of this crisis, whether that impact directly or indirectly, The impact of this crisis or other financial or economic crisis in a global economy, the degree of openness This economy on the global economy and the extent of its integration, as well as the procedures and precautions taken by the State to avoid the impact of such crises, or at least reduce their impact on the economy.
Saudi economy enjoys a high degree of openness to the global economy, where there are no restrictions on the movement recalls the entry of goods, capital and exit to and from the Kingdom. Also, there are no restrictions on transactions in the foreign exchange market and currency conversion. It is useful to point out here that the riyal exchange rate regime based on the stabilization of the Real almost exclusively in relation to the dollar, so there is a strong correlation between interest rates on the dollar and interest rates on the riyal. And a fixed exchange rate regime in Saudi consequent price rise and decline of the dollar against major currencies leads to a rise in the exchange rate of the riyal and a decline in the same direction for these currencies. Because of the continuing decline in the dollar exchange rate and a decline towards the major currencies since the beginning of 2001, the riyal exchange rate has witnessed a continuous decline towards these currencies (which are often currencies trading partners of the Kingdom), which contributed to inflationary pressures in the Kingdom. It should be noted here that the Kingdom’s accession to the WTO has increased the openness of the Saudi economy, where most of the markets and sectors of the economy open to competition (internal and external) and foreign direct investment.
In a nutshell, that as a result of his Saudi economy from a high degree of economic openness, there are a lot of external factors such as monetary and financial interest rates and foreign special interest rate for the dollar and the vagaries of exchange rates of major currencies, particularly the U.S. dollar exchange rate fluctuations, inflation and global oil prices affect In economic activity and financial markets and the general level of prices in the Kingdom, in the light of the above, it must be the impact of the crisis in the Saudi economy.

Is the impact of the crisis in Saudi banks?
Before we begin by highlighting the impact of the crisis in the Saudi economy must be noted here that recent rumors of large and strong negative impact of these banks in Saudi Arabia, to the extent that I think many of these banks face liquidity shortages, making it unable to meet their obligations. Can say with confidence that these rumors are unfounded and far removed from reality in which it operates Saudi banks.
The Saudi banking sector enjoyed a high degree of liquidity, and this is confirmed by the standards of liquidity for Saudi banks, making them among the most banks in the world enjoy a high level of liquidity. Among the indicators that confirm that Saudi banks are experiencing shortages of liquidity is the opposite of liquidity in abundance, is witnessed by the significant expansion Saudi banks to grant loans, and rapid growth in money supply, which mainly consists of bank deposits, in addition to the growing assets of Saudi banks to SAMA.
In order to limit the expansion of Saudi banks to grant loans (credit expansion), SAMA has finally absorb part of the liquidity at the banks of Saudi Arabia to ease inflationary pressures in the Saudi economy, rising from the Saudi government’s issuance of treasury bonds by more than 340 per cent since December (December) 2007.
What other stresses that the current crisis is not a direct impact on the Saudi banking sector, but is in a sound, is that the proportion of foreign assets to total assets of Saudi banks together amounted to about 12 per cent in July (July) 2008, and the proportion of investment banks Saudi Arabia abroad to total domestic assets amounted to 6 per cent in July (July) 2008. This confirms that most financial activities and investment banks to go to Saudi Arabia within the Kingdom in order to keep pace with the rapid growth of economic activities in the Saudi economy since the beginning of the decade.
It could also be argued that the precautionary measures taken by SAMA to protect the Saudi banking system and maintain the position that to reduce the indiscriminate lending (non-random expansion in the credit) and some other controls have worked well in preventing the Saudi banking sector shocks and financial stability and liquidity to maintain a balance In this sector. This is confirmed by the prestige and efficiency of financial capital, which has not been negative effects as a result of this crisis.

What is the effect of the current crisis on the real economy of the Kingdom?
Economists and analysts emphasize that there is evidence of a global economic recession as a result of this crisis, this recession are starting to see features in the United States and the European Union. The stagnation of the global economy would negatively in the Saudi economy through several channels that the most important global recession will have a negative impact on the oil market, leading to lower oil demand and prices. This will lead to slower growth in the Saudi economy, because the oil sector is the main engine of economic growth in the Kingdom, and the consequent reduction in oil revenues to the kingdom, which accounted for approximately 89 per cent of total government revenues, which could lead to reduced government spending.
The economic recession in the United States of America, who are starting to see features accompanied by a decline in the dollar interest rate and the inability of a growing U.S. trade balance will lead inevitably to the lower U.S. dollar exchange rate against most major currencies, or at least its continued existence at low levels for a long time, which Will have a negative impact on the riyal’s exchange rate against major currencies (representing the Kingdom’s trading partners), which may contribute to the persistence of inflationary pressures in the Saudi economy.
It should be noted that the low exchange rate of the riyal against the currencies of most trading partners of the Kingdom is one of the key external factors exacerbate inflationary pressures in Saudi Arabia, where the external factor contributing to this by about 35 per cent in creating inflationary pressures in the Kingdom.
The stagnation of the world economy are starting to see features will lead to lower global demand, which will affect negatively the growth of non-petroleum exports to the Kingdom, led by exports of petrochemical products, having seen non-oil exports growing rapidly since the beginning of the decade. This situation might reflect negatively on the profits of many companies that rely on exports of most products or a percentage of their products and, finally, the stagnation of the global economy could lead to reduce the flow of foreign direct investment to the kingdom.
In a nutshell, the global financial crisis that struck the global economy may be affected indirectly in the Saudi economy, notably a slowdown in the growth of the Saudi economy and a decline in exports, Saudi Arabia (oil and non-oil) and a decrease in the flow of foreign investment to the kingdom, in addition to the survival of the riyal exchange rate Most low against the currencies of trading partners of the Kingdom.