Saudi Arabia Business and economic outlook Quarterly update

Saudi Arabia Business and economic outlook Quarterly update – September 2013 Final analysis by Nenad Pacek

Contents • • • • Executive summary Important facts Economic fundamentals Strategic view of the market Corporate sales and profit trends Growth trends and drivers Household consumption trends Gross fixed investment trends Government spending trends Inflation rate and interest rates Currency issues Political update Forecast table – selected indicators

Executive summary I • • Our forecast for 2013 is slightly down to 4. 1% (following the first quarter’s weaker oil output), from 8. 6% and 5. 1% growth officially confirmed for 2011 and 2012 (we indicated last time that there was a downward revision coming up for 2012) Oil output has been recovering again and was 9. 6 m b/d in June – unofficially, it is back to almost 10 m b/d during the summer months (capacity is 12. 5 m b/d) The Syrian conflict/uncertainty will keep the oil price elevated in the coming quarters Growth will accelerate in 2014 to 4. 6% due to still-high oil output (and prices), strong private and government spending, good performance in the non-oil sector, a doubledigit increase in lending, strong FDI inflows, and a very loose monetary policy The non-oil private sector will expand by over 6% in 2013/2014 (supported also by new aluminium and petrochemical production, gas production) Despite some slowdown in growth this year, Saudi Arabia is still one of the fastest growing markets in the world for multinational firms, but there are several moderate threats to corporate growth ambitions and management of Saudi operations First, corporate budgets continue to be aggressive, but the market will not boom as it did in 2011 and partly in 2012

Executive summary II • • Second, competition will continue to intensify as companies continue to expand prioritize Saudi in MENA and emerging markets – margins will be affected Third, the aggressive government policy of Saudization is an element of disruption for the economy and for a number of companies (directly and indirectly) Fourth, operational costs will continue to rise as Saudization and more competition cause wage costs to go up It is advisable to have more prudent corporate growth targets for the coming years Bank lending to the private sector is strong at over 15% yoy and to the public sector over 10% yoy – the largest growth is in long-term loans indicating a new wave of important investments now taking place (strong credit growth is supporting GDP and domestic demand) Household spending will grow 6% this year, but retail sales will grow in double digits (point of sale transactions are currently up 17% yoy) Next year household spending growth will be 5. 5% Government spending will continue to be a big driver of growth in 2013 and 2014 (growing 6% and 5% respectively)

Executive summary III • • The new government budget indicates planned spending for this year of $219 bn (19% more than budgeted for 2012), but actual spending will be significantly higher since we expect total government revenues to be $290 bn (last year they were $320 bn) The focus of government spending will also partly shift to more capital spending (metros, railways, housing, health care and educational facilities etc. ) Corporate investment spending will also expand by 6. 3% on average this and next year Foreign direct investment will improve from 2013 and will reach at least $15 bn per year in 2013 and 2014 The consumer price index was recently rebased and indicates that average inflation rates were actually 2. 9% last year and 3. 7% in 2011 (both numbers are substantial downward revisions) Inflation will average 4. 1% this year (currently 3. 7% yoy) and 4. 3% next year But food and household goods prices are rising faster and affecting household spending growth at the margins

Important facts • • • The largest economy/GDP in the MENA region 6 th largest GDP per capita after Qatar, UAE, Kuwait, Israel and Bahrain Population around 29 m and growing by almost 1 m people every year; 60% are aged below 30; there are seven cities with over 1 m people Largest proven oil reserves in the world (21% of the total) or 265 bn barrels (to last up to 100 years with current technologies) Oil production fell from just over 10 m b/d in mid 2012 to just over 9. 2 m b/d in early 2013, but rose again to 9. 6 m b/d by the summer (full capacity is 12. 5 m b/d and some 80 m barrels are in storage) Oil accounts for 85 -90% of export earnings, 84 -86% of government revenue, and 5557% of GDP Three new refineries are coming on stream to support local fuel needs Gas reserves are 4% of the world total – Saudi is currently developing large gas fields as well as looking at developing shale gas resources Reserves of silver, zinc, phosphates, gold, copper, and bauxite Increasingly seeking to diversify the economy particularly around petrochemicals

Economic fundamentals • • Public debt is low at just under 12% of GDP – very low by international standards (it was over 100% of GDP 13 years ago) but will rise a little due to recent extra government spending External debt is low at just under 20% of GDP (very low by international standards; countries get into debt trouble at around 70% of GDP), but will increase marginally in the coming years as lending activity picks up Foreign assets are now estimated at over $680 bn after a recent strong rise — among the highest in the world and will exceed $700 bn+ by the end of 2013 Official reserves of the central bank are just over $60 bn (excluding gold) The current account is in a healthy surplus (over 22% of estimated GDP in 2012) The latest estimate is that at current high government spending rates, Saudi needs oil at $85/b to balance the increased budget, but if spending keeps increasing at this pace it will need a $95 oil price to balance the budget in 2015 In 2012 the country earned almost $1 bn per day in oil revenues It continues to be very dependent on oil prices but even in case of a sharp fall in prices it would be able to maintain good spending for several years due to sizeable reserves and low debts

Strategic view of the market • • For 82% of multinationals Saudi is the biggest business priority in MEA Corporate results are strong (see next pages) and more companies are putting more and more resources on the ground to try to boost short-term growth, but also to build a more sustainable business for the long term (that can be resilient to rising competition) However, competitive, pricing and cost pressures will continue to rise so designing prudent growth targets and managing expectations from headquarters is important Companies are drilling deeper into the market, focusing on boosting local presence, boosting sales and external affairs staff, accelerating spending on brand-building and business development – there is an overall increase in the allocation of resources Saudi remains one of the most strategic markets for sales in the emerging markets Executives expect solid growth in household, corporate and government spending to continue in 2014 but are aware of the risks and possible slight softness Opportunities exist in many areas, including minerals and mining (phosphates, aluminium), power, water, petrochemicals, transport, education, ports and airports, logistic centres, railways, IT, and healthcare/biotech etc. Should oil prices fall sharply (below budgeted $70), many opportunities will diminish

Corporate sales and profit trends – all sectors • • • Saudi Arabia is among the world’s best growth markets for companies In 2012 some 98% of multinationals grew their sales and this percentage is expected to fall to 89% this year and then to rise again to 91% in 2014 Saudi Arabia is set to remain the Number 1 growth market in this region in 2013 and 2014 95% of multinationals grew their profit last year, but this percentage is expected to fall to 86% of firms in 2013 (profit margins are coming under more pressure) Expectations for 2014 regarding sales and profit growth are strong – some 95% of firms expect to grow Some 55% of companies expect to grow in double digits while the rest expect a combination of single digit sales growth However, companies should be aware of rising competition as well as cost pressures in the next few years Proactively building a more resilient local presence will be a key success factor going forward Complications with Saudization will make the operational environment difficult

Corporate sales/profit trends 2012 -14 based on June 2013 corporate survey

Consumer goods–sales/profit trends 2012 -14, based on June 2013 corporate survey • 2012 was better than corporate expectations (see upcoming charts) • Expectations for 2013 are good, but weaker than 2012 results – some 55% of companies expect to grow their sales and profits in double digits while the rest expect high single-digit growth • Companies are anticipating some softening of domestic demand as the impact of a massive 2011 fiscal stimulus program starts to wear off, but also as competition from all corners of the world accelerates to unprecedented levels (and as costs continue to rise) • For 2014 companies expect further softening of domestic demand rising competition – expectations for sales and profit growth are shifting towards more single digit growth (with profit growth heavily shifting to low single digit growth)

Food/beverage – sales/profit trends 2012 -14 based on June 2013 corporate survey • 2012 sales growth was better than corporations expected (see upcoming charts) • However, profit growth was worse than companies expected • Profit pressure stems from rising competition, higher raw material prices and, in some segments, government imposition of price controls (some of our CEEMEA Business Group members were asked not to raise the prices of basic food staples last year in an effort to prevent social unrest) • 2013 expectations are a mix of single- and double-digit growth both for sales and profits • 2014 expectations are worse than expected results for 2013 – only 65% of companies expect sales growth while others expect flat performance (this is sharply down from 2012 results when 88% of multinationals had sales growth • 2014 profit expectations are also worse and largely shifting to single digits

Industrial B 2 B – sales/profit trends 2012 -14 based on June 2013 corporate survey • Performance in 2012 was much stronger and better than initial expectations (see upcoming charts), but profit growth was weaker, coming under pressure from rising competition • 2013 revenue expectations are solid, but softer than 2012 results: less than half of multinationals plan to grow in double digits (most expect to grow in high single digits) • 2013 profit expectations are good with 83% of firms expecting profit growth • Profit margin pressures are coming from rising competition not only from multinationals, but also from medium-sized firms from developed markets and various new competitors originating from emerging markets • 2014 sales expectations are a mix of single and double digit growth, but profit growth expectations are moderate as competition and costs increase

Pharma/healthcare–sales/profit trends 2012 -14 based on June 2013 corporate survey • 2012 results were also strong, with almost 80% of companies growing in double digits (both revenues and profits) • 2013 revenue expectations in this sector are even stronger than 2012 results – companies expect continued investments in the healthcare sector to keep sales growth predominantly in good double digits • 2013 profit growth expectations are also very good, but there are some profit margin pressures building up, as well as some receivables issues • 2014 sales growth expectations are very good with almost 70% of firms expecting to grow in double digits • 2014 profit growth expectations are equally good

IT – sales/profit trends 2012 -14 based on June 2013 corporate survey • In 2012 companies were equally split between low single-digit revenue growth and growth in the 15 -20% range • However, more companies are reporting that it takes considerable time to get deals signed, and to get paid • Profit growth was worse last year than revenue growth (one third failed to grow their profits while the rest managed single-digit growth) • Expectations are much stronger for 2013 as companies expect more government and private sector spending on IT • All firms expect to grow sales this year in a mix of single and double digits • All firms also expect profit growth this year, but with a larger proportion of companies growing in single digits • In 2014 corporate expectations are stronger, particularly regarding sales growth as more firms expect to grow in double digits

2012 revenue and profit expectations by sector based on June 2013 survey

2013 revenue and profit expectations by sector based on June 2013 survey

2014 revenue and profit expectations by sector based on June 2013 survey

Growth trends and drivers I • • • As we expected, the authorities revised their 2011 GDP growth figure to 8. 6% driven by a 23% increase in government spending ($214 bn in total) The official growth figure for 2012 is now 5. 1% (as we predicted, less than the initial estimate) Growth drivers in the last two years include: a high oil price, high oil output, consumer and corporate confidence, ultra-loose monetary policy with negative real interest rates, a massive government spending program in 2011 and robust spending in 2012, the return of double-digit lending growth as monetary authorities injected liquidity into the system and banks returned to profit, and solid high single digit non-oil sector growth Many of these factors will continue to support growth in 2013 and 2014 although with oil output expected to be below 2012, overall growth will slip to 4. 1% in 2013 and then rise to 4. 6% in 2014 Oil output fell to under 9. 3 m b/d at the start of the year and caused GDP to grow just 2. 1% (estimate), but oil output has been recovering since then With oil production disruptions in Iran, Iraq, Libya and Nigeria, oil output in Saudi could rise again in the coming months to close to around 10 m b/d

Growth trends and drivers II – 2013 and beyond • • Average production in 2013 will be about 9. 5 m b/d (down from 9. 87 m b/d average in 2012) and it will average 9. 8 m b/d in 2014 Non oil GDP grew over 6% last year and it will perform equally well in 2013 -2014 In the mid-term Saudi is exposed to the risk of lower oil prices as more oil comes on stream in the US, Brazil, Iraq, Libya, and Sub Saharan Africa Should oil prices suddenly fall closer to $70 per barrel, growth would slip below 4% We continue to believe that oil prices are highly unpredictable considering substantial speculation in the futures market (which is now some 7 -8 times bigger in volume than the physical oil market) A potential US attack on Syria would cause a spike in the oil price which would help Saudi growth and demand Post “Arab spring” government spending measures initiated in 2011 (and still felt today) include: construction of half a million new homes, higher welfare benefits, investment in health infrastructure, a special bonus of two monthly salaries for public sector employees, higher minimum public sector wages, more jobs in the public sector, and cash injections into banks to enable banks to write off debts and stimulate lending (the latter succeeded)

Growth trends and drivers III • • This $130 bn spending boost from 2011 continued to help growth in 2012 and the new government spending plan (which will be exceeded as always, see later) will continue to support overall growth in 2013 as well Electricity consumption is still rising 8% per year indicating that reported real GDP growth numbers could be too low (and will perhaps be revised upwards later) Saudi Arabia should be able to keep growing in the range of 4 to 5% in the coming five years, but the moderate risk factor is the oil price (and to a lesser extent oil output) Over the medium term, growth will be largely driven by government spending, which will be around $700 bn in the period 2013 -15 (at least some $230 bn per year) Spending will go into large transport infrastructure projects; construction of hospitals, schools and houses; four new economic cities; petrochemical and refining facilities; aluminium production; four gas fields; and social spending on unemployment benefits, public sector jobs, and wages Spending on the previously announced $67 bn housing program will now finally accelerate with the latest order from the King to make the land available for developers Over $1 bn was recently signed to construct some 40, 000 housing units

Growth trends and drivers IV • • • The $22 bn Riyadh metro project was awarded (a metro project will also start soon in Jeddah and one is already underway in Mecca) – other infrastructure project are in motion too Metros, when finished, will reduce oil consumption and will help women’s mobility But even if oil prices were to fall to what many oil majors say in private is the “real price of oil”—around $55—Saudi Arabia would be able to maintain relatively high levels of spending in the short term (1 -2 years) if it chose to tap into its large foreign assets However, a military escalation in Syria or Iran could push prices up again (and this would give a short-term boost to Saudi growth) Considering its planned increases in government spending, Saudi will probably need an oil price of $95 -$100 by 2015 -16 (from currently about $85) to execute all spending plans and keep its budget balanced However, if the country does not diversify to other energy sources for its domestic consumption as quickly as possible (solar, for example), a large increase in domestic energy consumption in the coming years will reduce exports of oil to such an extent that the country could face deep budget deficits and even a series of recessions in 1020 years – this is a long-term risk

Growth trends and drivers V – lending and FDI • • • Banks continue to lend at a faster pace than in most emerging markets Bank lending to the private sector is strong at over 15% yoy and to the public sector over 10% yoy – the largest growth is in long-term loans indicating a new wave of important investments taking place now (strong credit growth is supporting GDP and domestic demand) Back in 2011 credit was growing at just 5% Domestic banks are liquid, well capitalized and profitable The recent recovery of credit expansion was helped by 2011 cash injections from the authorities Authorities are likely to allow stronger credit growth also during 2014 Non-performing loans officially are now less than 4%, much better than most emerging markets in CEEMEA Last year’s foreign direct investment (FDI) fell to just over $12 bn after a strong $16 bn inflow in 2011 and even stronger in 2010 when it was almost $30 bn) With ongoing efforts to diversify and strong corporate interest in the country, we expect FDI inflows of some $15 -20 bn annually in the next five years This will support overall growth and domestic demand

Household consumption trends I • • Household spending expanded by 7. 0% in 2012 – among the best rates in the world, backed by exceptionally strong consumer confidence This is less than some 8. 0% household spending growth in 2011, but still very respectable and has helped drive sales of many consumer goods companies We believe that household spending will increase by 6% this year and retail sales will most likely grow by up to 11% -- next year household spending will increase 5. 5% Good growth is due to the direct and indirect impact of higher government spending, higher lending, and very good consumer confidence (and partly also due to extended unemployment benefits and more public sector jobs and wage increases) Relatively stubborn food and household goods inflation (7% yoy and 5. 5% yoy) is partly causing more moderate household spending growth The value of point-of-sale transactions (similar to retail sales measurement in other markets) is up 17% and getting softer than 20%+ growth until recently Consumer confidence is among the top 10 globally Executives should ensure they budget more prudently for 2014 due to rising costs, rising competition, and fairly stubborn inflation

Household consumption trends II – corporate opinion “I was just in an internal meeting listening to colleagues from Asia, Latin America, Russia, and Turkey. They all have the same problem. They are growing well but are behind their budgets. I believe we have the same potential threat now developing for Saudi. I am constantly being asked to reforecast Saudi growth upwards and the preliminary budget request for 2014 is honestly too high. The idea is to compensate for shortfalls elsewhere, but the problem is that every single competitor we have is getting the same message. Everyone is more aggressive and we see how our results are progressively getting softer. The worst thing that can happen is we end up in some budget trap that then forces us to limit our expansion plans for the medium and long term. I see another thing that will affect us and that is a huge increase in HQ demanding more profit from MENA. There is currently less interest in top line. ” Regional director MENA, consumer goods multinational

Household spending III – employment trends • • The latest round of the Saudization program is proving to be disruptive for firms both directly and indirectly Although many of the 9 m foreign workers have managed to legalize their positions and sort out proper visas, the potential outflow of expats can reduce overall household spending as well as impact day to day operations of multinationals (higher wage costs, disruptions of services/distribution/logistics etc) Officially, unemployment is just over 12% of the work force and over 27% for the young (government says that unemployment among men is just 6. 1% now) Considering that 1. 3 m people (mostly women) applied for unemployment benefits (part of the Hafiz program) during the 2011 public spending boost, official unemployment most likely understates the true unemployment level for locals The deadline for expats to sort out proper visas has been extended again The government is shutting down illegal companies which are run by foreigners, but on paper are owned by Saudis The rationale behind the crackdown is to legalize businesses and force them to employ more Saudis

Gross fixed investment trends • • We expect corporate spending on plant and machinery to expand by 6. 3% in 2013 and 2014 as double-digit credit growth continues, oil output and prices support overall liquidity, FDI rises and SMEs continue to do reasonably well Non-oil GDP grew some 6% last year in real terms and this year it will be pretty much the same – this is supporting overall corporate spending Currently lending to the construction industry, health, utilities, and services is growing by more than 40% yoy and there is a notable rise in long-term loans The Purchasing Managers’ Index is in good shape and companies continue to report very good (if a bit softer) orders growth The risk, as always, is linked to a bigger fall in oil prices CEEMEA Business Group members also report rising competition and many companies from different parts of the world are now chasing a well-known pool of existing and potential clients – margin pressures are likely to build up even more in the next couple of years On-going government spending and very solid FDI of over $15 bn per year in the next few years will spill over into more corporate demand (indirectly and directly)

Gross fixed investment trends II • • • The greatest expectations for sources of industrial sales growth are related to: the plastics and packaging industries; petrochemicals, natural gas, and refineries; minerals, metals and mining; utilities infrastructure, power and energy/alternative energies; housing construction; transportation infrastructure; IT; healthcare; and education We see many of our Group members planning to further increase their local presence, particularly sales/marketing and external affairs staff, to be able to take advantage of these opportunities But finding people remains a major bottleneck for expansion and complying with the Saudization program remains a major challenge and cost item Only companies with a strong presence, capabilities and personal contacts will prosper amid growing competitive pressures, provided one can manage the HR/Saudization problem But companies are also careful about fixed costs and are increasingly consolidating back office functions in one GCC or MENA location

Gross fixed investment trends III – corporate opinions “We are having a very good year although I am getting a bit worried about the next budget cycle. While I am convinced the market will grow well as long as oil prices are high, I can tell you that competition is giving me more and more sleepless nights. As a big western multinational, we are slow to adapt to pricing and product portfolio changes in the market. This is affecting us in Saudi but also elsewhere, including interestingly enough Abu Dhabi. The number of cheaper competitors going to our traditional clients in Saudi is at an all-timehigh. Everyone wants a piece of Saudi business. We must very carefully look at our relationships, products, innovation, marketing and sales structure, and costs to stay competitive. ” Regional director MEA, industrial B 2 B multinational

Government spending trends I • • Companies dependent on government spending are likely to see on-going government spending increases, especially if the oil price stays above $85 -90 If it drops below, some projects could be delayed and if it drops down very sharply, many projects could be delayed (if the government does not want to dip into its substantial reserves—see the Economic fundamentals slide) The government plans to spend $219 bn this year but spending will probably exceed $240 bn (some 6% increase over 2012) We believe that government spending, after growing over 11% in 2011, is now returning to a more moderate, but still-solid growth rate of about 5 -6% per year (which is still among the better spending increases of any country in the world) Since 2002, actual government spending usually exceeded the budget by at least 20% (in 2011 by almost 40%) But companies should have contingency plans if the government gets cold feet about some projects in case of a sharp fall in oil prices or implementation difficulties Some 35% of spending this year will go into capital projects and in recent months the government has approved several sizeable projects (see earlier)

Government spending trends II • • • We expect a budget surplus of 6. 5% of GDP in 2013, down from over 13% surplus in 2012 Companies estimate that Saudi Arabia now accounts for almost 60% of total GCC government spending Some government spending highlights: – Over 3, 500 km of roads as part of a $10 bn allocation for transport infrastructure – $25 bn on healthcare (including construction of hospitals) – Over $40 bn on education (including construction of schools) In the medium and long term, there is a strong possibility that the Saudi budget could slip into deficit in about 3 -4 years due to ongoing strong increases in government spending and possibly weaker oil prices in the mid-term We believe that even in case of sharp falls in the oil price, the government could maintain some spending for a year or two by tapping $680 bn+ in foreign assets

Inflation rate and interest rates • • Inflation has come down from 9. 9% in 2008 The consumer price index was recently rebased and indicates that average inflation rates were actually 2. 9% last year and 3. 7% in 2011 (both numbers are substantial downward revisions) Inflation will average 4. 1% this year (currently 3. 7% yoy, but food prices are up almost 7% yoy and household goods up 5. 5% yoy) Interest rates are low – the repo is just 2. 00% and reverse repo 0. 25% Interbank rates are creeping up but are still exceptionally low – this mild increase is the result of faster lending growth vs. savings deposit growth This means that real interest rates are negative (money is technically free), but average lending rates are still typically between 6. 5% and 7. 5% at the moment Interest rates will stay low to encourage growth and to reduce social tensions We also do not expect any tightening of reserve requirements unless credit starts to exceed 20 -25% growth (similar to the lending growth rates Saudi enjoyed in 2007 -08) and if subsequently the inflation rate gets out of control

Currency issues • • The local currency remains pegged to the dollar This is unlikely to change despite the fact that the inflation rate is higher than in the US and therefore it is increasing the real value of the currency (and technically making nonoil exports less competitive) We are likely to see continued moves towards the creation of a joint central bank for Saudi, Qatar, Kuwait and Bahrain (for now without Oman and UAE) A monetary council comprising these four countries is in place and it is possible that the new central bank will be created within two years However, this does not mean that there will be a common currency soon We believe that the earliest date for an introduction of the common currency is 2016, but various technical and political issues could delay it If the local currency were floating freely it would most likely appreciate considering the large current account surplus and inflows of capital The current account will probably continue to narrow in the next 3 -4 years as imports continue to boom and exports become affected by moderating oil prices

Political update I • We believe that the authorities will continue to manage the succession without major disruptions despite the shift to a younger generation in the coming years • Several grandsons of Abdulaziz (known as Ibn Saud, the founder of the country) were recently appointed to key positions in the country, which indicates a gradual shift to the “rule of grandsons” • The Crown Prince is 78 -year old Prince Salman (he is also Defense minister), but the recent appointment of King Abdullah‘s half-brother Prince Muqrin (70) to the post of second deputy premier was a surprise • Second deputy prime ministers usually end up as Crown princes • However, once King Abdullah dies (he is 90), we expect the succession process to be managed by an Allegiance Council and that means that Prince Muqrin‘s further ascent is not guaranteed • The recent promotion of Mohammed bin Nayef to the important post of interior minister (to succeed his late father) indicates that he is also a strong contender once the Allegiance Council starts its deliberations

Political update II • Other candidates for Crown Prince include governors of the Eastern province, the governor of Riyadh, the governor of Mecca and the head of the National Guard • Prince Salman bin Sultan was recently appointed to the post of deputy defense minister (he is the son of late Crown Prince Sultan) • Shia protests in the Eastern province (where the largest oil fields are) will not go away and protests will be crushed • Saudi will also continue to intervene in Yemen to prevent the spread of any groups hostile to the Kingdom • It will support the military in Egypt and will seek to prevent the rise of Muslim Brotherhood throughout the region • It will also continue to support rebels in Syria (to ultimately weaken Iran) • A group of alleged spies (spying for Iran) were arrested recently in Saudi • Companies largely continue to ignore political risk in Saudi (the risk is hard to quantify and even harder to put on a time scale)

Saudi Arabia - forecast table * growth, government spending, budget surplus, current account surplus will be higher than below projections in case attack on Syria causes a further oil price spike 2010 2011 2012 2013 2014 2015 8. 6 5. 1 (revised) 8. 1 7. 0 4. 1 4. 6* 4. 5 6. 0 5. 5 5. 2 Real GDP growth, % 4. 1 Household consumption, % 3. 5 Gross fixed investment, % 3. 5 6. 7 6. 3 6. 0 Government spending, % 12 11. 5 7. 5 6. 0 5. 0* 4. 3 Exchange rate vs. $ 3. 75 3. 75 Inflation rate, %, avg 5. 4 4. 1 4. 3 4. 2 Budget balance, % of GDP 6. 8 3. 7 2. 9 (revised) 14. 0 13. 7 6. 5* 2. 0* 1. 0 Current-account balance, % of GDP 15. 5 14. 0 11. 0* 6. 0 23. 2

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