1. Saudi Economic Outlook & Banking Beyond the Crisis King Fahd University Of Petroleum & Minerals December 2010 Said A. Al-Shaikh National Commercial Bank

2. Outline Global Economic Update Saudi Arabia Economic Outlook Budgetary Developments & Fiscal Policy Economic Growth Forecasts & Megaprojects Inflation & Monetary Policy Banking & Financial Markets

3. Global Economic Update

4. Sources: IMF Global recovery evolved on a steady path in 2010; yet, economic growth will be uneven, with modest growth in developed economies (2.7%), and strong growth in emerging economies (7.1%)

5. Sources: IMF and JP Morgan As the effect of stimulus measures wane, demonstrated by weakening PMI since April, global economy is losing momentum with growth expected to slow to 4.2% in 2011 after rising 4.8% in 2010, but a double dip is unlikely

6. Dollar has been weakening since 3Q, against Euro, on weak economic data in US and expectations of further QE, though medium term weak outlook in Euro area may rebalance Euro-Dollar Sources: Reuters

7. Saudi Arabia Outlook Saudi Arabia Economic Outlook

8. Budgetary Developments & Fiscal Policy

9. Sources: EIA, OPEC and NCB Crude oil prices, based on a gradual recovery in global demand, are expected to average $80 with Saudi production rising to 8.5 million b/d in 2011.

10. Sources: SMA, MOF and NCB Research The Current and Fiscal account Balances are projected to register higher surpluses in 2010 and 2011, on expected higher oil revenues

11. Sources: MOF and NCB Research Official Budget vs. Actual Spending (in SAR billion, unless otherwise stated) 200820092010 BudgetedActualBudgetedActualBudgetedNCB Est. Revenue 450.0 1,101.0 410.0 505.0 470.0 690.0 Oil 370.0 983.4 320.0 449.5 385.0 619.3 Non-oil 80.0 117.6 90.0 55.6 85.0 70.8 Expenditure 410.0 520.1 475.0 550.0 540.0 605.0 Current 245.0 388.9 250.0 410.4 280.0 441.7 Capital 165.0 131.2 225.0 139.6 260.0 163.4 Balance 40.0 580.9 -65.0 -45.0 -70.0 85.0 Memo: (USD/bbl) Implicit budget oil price 46 Forecast oil price 75 Despite rising expenditure beyond budget, the fiscal balance in 2010 is expected to record a surplus on higher oil revenues

12. The government has been placing greater emphasis on capital expenditure in order to create job opportunities and support economic growth in the medium-term Sources: SAMA, MOF and NCB Research

13. Sources: MOF and NCB Research The public debt has been reduced sharply, and now government expected to pay off the outstanding debt, but gradually and over an extended period of time

14. Net Foreign assets, largely in US fixed income securities, will regain back its position of 2008, enabling the government to pursue its fiscal expansionary policy beyond 2010 Sources: SAMA and NCB Research

15. Economic Growth Forecats & Megaprojects

16. Sources: SAMA, MOF and NCB Research Saudi Economy is well placed to grow at pre-crisis levels, underpinned by government spending, with non-oil private sector leading the recovery

17. Sources: SAMA and NCB Research Macroeconomic Indicators (% change unless otherwise indicated) 2009 2010f 2011f Nominal GDP (SAR billion) 1,409.0 1,626.0 1815.0 Real GDP 0.6 3.7 4.0 Oil Sector -6.7 2.3 2.6 Non-oil Sector 3.8 4.4 4.5 Of which: Manufacturing 2.9 4.0 5.5 Construction 4.7 6.0 6.5 Utilities 6.8 7.0 6.0 Private Services 4.1 5.5 5.4 Government Services 3.8 3.0 2.5 CPI inflation (average) 5.1 5.2 5.0 Current account balance (% of GDP) 6.0 10.8 10.0 Overall fiscal balance (% of GDP) -3.2 5.2 4.7 Arab light oil price (USD/bbl) 59.2 75.0 80.0 The robust government infrastructure spending will continue to lend support to the non-oil sector, mainly utilities and construction

18. Although expenditures in residential construction show faster growth, non-residential works still represent the bulk of investments at 72% with GFCF rising to SAR188 bn in 2010 Sources: SAMA

19. Improved business environment along with economic reforms have accelerated FDI inflows, with manufacturing accounting for the largest share followed by finance & real estate Sources: SAGIA

20. Steps taken by PIF and SIDF to provide funding for mega infrastructure and industrial projects along with ECA’s and improving appetite of local banks are easing the financing challenge

21. 728 current projects in the Kingdom exceeded SAR2.6 tr in worth, while 22% of projects are in the execution phase led by construction, infrastructure and power, respectively Sources: MEED Projects, as of June 2010

22. Contracts awarded in 2010 and 2011 are forecasted at SAR240 bn and SAR323 bn, respectively, while construction sector dominates the market, followed by petrochemical and oil & gas sectors Sources: MEED Projects, as of June 2010

23. To be continued