Oiling the wheels : credit and monetary neutrality in Saudi Arabia

Abstract EN

Confirming quantitatively that the influence of export earnings on non-oil activity in Saudi Arabia has been slight, the SVAR methodology employed in this study identifies the impact on private sector liquidity of fluctuations in oil receipts as an important element in the explanation of this disappointing experience.

Banks appear to finance working capital requirements when oil prices are weak but do not expand their commitments to the sector when stronger domestic activity (associated with higher oil revenues) would be expected to encourage fixed investment demand.

It is concluded that budget and public expenditure stabilization in the presence of varying oil revenues could promote bank engagement with the private sector.