Oil Prices and Saudi Boom and Islamic Finance Cycles

Oil Prices and Saudi Boom and Islamic Finance Cycles
Officials from the Qatar Central Bank hand over new currency notes to the local commercial banks in Doha 15 June 2003. The Qatar Central Bank (QCB) formally handed the new fourth issue of the Qatari banknotes over to commercial banks operating in the country. QCB earmarked in anticipation Qatar real 100m worth of new banknotes to be circulated through commercial banks starting from today. AFP PHOTO/Karim JAAFAR (Photo credit should read KARIM JAAFAR/AFP/Getty Images)

Rising oil output boosted Saudi Arabia’s economic growth to its fastest pace in over a year in the second quarter of 2015, according to data released by the country’s state statistics department.

GDP expanded 3.8% from a year earlier in the second quarter, reported Reuters, compared to 2.3% in the first quarter.

These figures, however, are expected to go into decline as the reality of prolonged low oil prices catches up with the Saudi economy thanks to budget deficits and circulating rumours of infrastructure spending cuts.

“We are likely to see a gradual deceleration in growth going forward – though it will not be abrupt,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

In a related development, Trade Arabia quoted a statement by the Saudi Electricity Company (SEC) that it had has received approval from its executive committee to negotiate for loan financing worth $2.3 billion and to set up a sukuk programme worth as much as $1.5 billion.

Sukuk or Islamic bonds have been associated with deficit-financing in Saudi Arabia and other Gulf Arab states thanks to the oil price slump.

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