Saudi Arabia's economy, booming on the back of a two-year surge in world oil prices, is set for even faster growth as economic liberalisation and reforms begin to kick in, the central bank said on Monday.
But it said the world's biggest crude exporter also faces the challenge of diversifying its oil-driven economy, providing basic services and jobs for a rapidly growing population, and preparing domestic industry for foreign competition.
The Saudi economy has grown more than five percent in each of the last two years, buoyed by a doubling of world oil prices to over $60 a barrel, and economists predict this year will be at least as good.
The Saudi Arabian Monetary Agency (SAMA) said regulatory reform, privatisation, the opening up of the insurance and tourism sectors and growth of the petrochemical industry will all help build on the recent expansion.
"(The economy) is expected to witness higher growth rates in the coming years compared to the preceding years," SAMA said in its annual report, released on Monday. "Growth rates are expected to accelerate, especially in the private sector, during the coming five-year plan period".
The latest five-year plan runs to 2009.
Monday's report included minor adjustments to Saudi Arabia's GDP growth figures, trimming last year to 5.2 percent from 5.3 percent and raising 2003 to 7.7 percent from 7.1 percent.
SAMA governor Hamad al-Sayyari said in May he was optimistic that economic growth this year will beat the 2004 performance, but declined to predict a figure.
The report also revised upwards last year's budget surplus to 107 billion riyals ($28.5 billion) from initial projections of 98 billion riyals, due mainly to slightly lower than expected expenditure.
But it also highlighted the challenge Saudi Arabia faces trying to ease dependence on crude oil production - oil revenues accounted for 84 percent of total government income of 392 billion riyals last year.
Demand from a growing population for jobs and basic services including electricity, telecommunications and water is also rising fast and could put a financial strain on the kingdom.
In both cases SAMA called for a greater role to be given to the private sector, and said the Saudi capital market should be developed to mobilise more capital and create more opportunities for domestic investment.
So far only one Saudi company, petrochemical giant SABIC, has announced plans for a domestic bond issue. SABIC says it hopes to issue the 1 billion riyal sukuk by the end of the year.
It said Saudi Arabia, which hopes to join the World Trade Organisation in December more than a decade after it applied, should strengthen its banking and financial sector to meet domestic need and compete with foreign manufacturers and banks.