Saudi Arabia will use state investment funds to extend credit to companies in an effort to make up for banks' reluctance to lend and stimulate an economy hit by the collapse in oil prices. In an interview with the Financial Times ahead of Group of 20 finance ministers' meeting in the UK, Saudi Finance Minister Ibrahim Al-Assaf said the Public Investment Fund (PIF) is stepping up its level of lending, extending the maturing of loans available to companies and providing them with a five-year grace period. While the PIF can lend only to companies in which it owns shares, the Industrial Development Fund and a government-owned credit savings bank are increasing their funding for small and medium-sized companies. Al-Assaf said the economy of the world's biggest oil exporter had not been as badly affected as others by the global financial crisis, in spite of the sharp drop in oil revenues. Saudi banks have largely avoided investments in toxic assets but, nevertheless, they have been tightening their risk criteria. According to Samba, lending to the private sector declined by 1 percent in the second half of last year. The government has already injected $3b into the banking system, lowered reserve requirements on demand deposits and cut benchmark lending rates to 2 percent. “A stimulus for us is different from other countries. Others are stimulating an economy that is going backwards,” Al-Assaf was quoted as saying. Al-Assaf insisted that the state was determined to push ahead with its $400b five-year investment program in infrastructure and the oil industry, and had a sufficient cushion of savings from the high oil prices of recent years – government revenues reached a record $293b last year – to support its plans. The government announced in December the biggest budget ever, projecting a deficit for the first time since 2002. Saudi Arabia, Al-Assaf said, had the “largest” stimulus package among G20 countries. “A stimulus for us is different from other countries,” he said. “Others are stimulating an economy that is going backwards. In Saudi Arabia the non-oil sector is still growing but we are spending more to substitute for the slowdown coming from the rest of the world, and now we can get goods and services at reasonable prices.” Bankers say that while the non-oil sector will grow this year, the fall in oil prices will drag economic growth down to negative levels. Al-Assaf said Saudi Arabia was ready to “play its role” in the G20 but he would not be drawn over whether that would include increasing contributions to the International Monetary Fund. The US has called for the IMF to be given up to $500b more to help it assist countries hit by the crisis. Analysts say that any increase in IMF contributions would be politically sensitive and would have to be delicately addressed at home, where public opinion wants the state's resources to be fully targeted towards domestic spending. Al-Assaf, however, made it clear that Saudi Arabia was calling for an increase in the shares and voting powers of developing countries in international financial institutions. He said increases in developing countries' quotas should be based on the ability and willingness of countries to contribute to IMF resources.
