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Saudi Arabia unveils $385 bln spending plan

Saudi Arabia plans to build schools, hospitals, housing and other infrastructure projects as part of a five-year plan budgeted at $385 billion, the state-run Saudi Press Agency (SPA) reported.

Ageing King Abdullah is under pressure to create jobs and build housing as the population grows and unemployment rises, hitting 10.5 percent last year.

Two-thirds of Saudi nationals are under 30 years old and the kingdom has struggled to create jobs for them, partly because of a state education system focused more on religion than job skills and partly due to local firms often deciding to hire non-Saudis at lower wages.

The country’s foreign population, many of them workers from India, Pakistan and the Philippines, jumped by 37 percent in census data released last week.

The biggest Arab economy and world’s top oil exporter, the kingdom’s 1.44-trillion Saudi riyal ($385-billion) plan exceeds its previous five-year development plan by 67 percent, SPA said.

It was announced by Economy and Planning Minister Khalid Bin Mohammed al-Qusaibi after being approved by Saudi Arabia’s Council of Ministers on Monday, it said.

“This … basically solidifies the government’s commitment on all the important sectors,” said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh.

He said it was important for the kingdom to invest in education as the oil-rich country looks to bolster other sectors. Just over half the spending is devoted to manpower, education and training.

That includes plans to build technology colleges and vocational schools while 19 percent of the funds will be devoted to the health care sector and seven percent to housing.

“When you have a knowledge-based economy then you have a far better chance to achieve sustainable development,” he said. “This is part of the strategic effort to diversify its economy.”

GROWTH, INFLATION

Monica Malik, senior economist at EFG Hermes, said the planned spending would support estimates for economic growth.

“With increased government investment, we forecast that real non-oil GDP will accelerate to 4.6 percent in 2010 and will remain between 4 to 5 percent over the next five-year period,” she said.

During the global financial crisis two years ago, Saudi Arabia announced a $400 billion stimulus plan, the biggest of any government as a percentage of gross domestic product.

Annual inflation soared to a record high 11.1 percent hit in July 2008, falling back to a two-and-a-half year low of 3.5 percent last October.

It has risen since, hitting 5.5 percent in June, its highest level in at least a year.

“The investment programme is adding to inflationary pressure,” said Malik at EFG Hermes, noting any suppression of domestic demand from inflation would be largely mitigated by the higher investment and consumption from a population influx.

“We forecast that Saudi Arabia will see the highest inflation level in the GCC region,” she said, referring to the Gulf Cooperation Council which groups Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

Finance Minister Ibrahim Alassaf, whose ministry wields control over the country’s budget, told Reuters in an interview in late May that the kingdom would stick to its 2010 national budget, which was set at 540 billion Saudi riyals ($144 billion).

He also reiterated the kingdom’s official line that an oil price between $70 and $90 is good for the market. Oil on Tuesday was near $80 a barrel, with U.S. crude for September delivery down $1.03 at $80.45 and London Brent crude down $1.30 at $79.69 as of 1020 GMT. (Additional reporting Martina Fuchs; Editing by Jason Neely and Jon Hemming)

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