Saudi Arabia has reported a budget deficit of 2.91 billion Saudi riyals ($770 million) for the first quarter of the year after spending on the kingdom's economic diversification projects increased.
Expenditure from January to March rose by 29 per cent annually to 283.85 billion riyals, driven by a 75 per cent yearly increase in capital expenditure and a 52 per cent rise in social benefit expenses.
Meanwhile, total revenue during the period grew by 1 per cent annually to 280.9 billion riyals as non-oil revenue rose by 9 per cent, year on year, to 102.3 billion riyals, the Ministry of Finance said on Sunday.
Oil revenue fell 3 per cent annually to 179 billion riyals in the three-month period on lower crude prices.
“At a time when oil revenues decreased slightly, the kingdom’s Vision 2030 programme of supporting the non-oil sector and diversifying sources of income succeeded in playing a prominent role in raising non-oil revenues in the first quarter,” the state-run Saudi Press Agency cited the ministry as saying.
Government reserves stood at 415 billion riyals while the current account balance at the end of the quarter was 35.38 billion riyals.
The deficit was fully funded from external debt, without withdrawing from the reserve, the ministry said.
“This level of deficit does not cause concern in light of the strong financial position of public finances, so there is a great ability to continue the expansionary fiscal policy and consider accelerating projects with an economic return,” it said.
The kingdom posted a budget surplus for 2022 of 102 billion riyals, which was 12 billion riyals higher than predicted figures, mainly on the back of higher oil prices.
“With the kingdom announcing voluntary oil production cuts of 500,000 barrels per day from this month, we expect the budget to be close to balanced this year after recording a surplus in 2022,” Emirates NBD economists said in a research note on Monday.
Saudi Arabia's economy expanded by 3.9 per cent in the first quarter on an annual basis, boosted by growth in its non-oil sector, it said on Sunday.
Non-oil activities grew 5.8 per cent in the first three months of the year compared with the same quarter in 2022, while oil activities rose 1.3 per cent during the period, initial estimates released by the General Authority for Statistics showed.
Meanwhile, government services activities increased by 4.9 per cent annually during the first quarter, the government agency said.
The kingdom is in the middle of a major economic diversification drive under its Vision 2030 agenda, amid a push to reduce its reliance on oil and tap into other high-growth industries to boost its economy, create more jobs and attract private investment.
Saudi Arabia is investing heavily in developing its tourism, hospitality, aviation, logistics, advanced manufacturing and technology industries.
Earlier this month, the kingdom said it was seeking investment worth more than 96 billion riyals in its manufacturing sector as the Arab world’s biggest economy looks to expand its industrial base.
The kingdom has identified 50 investment opportunities as part of its National Industry Strategy, officials said.
In October, Saudi Arabia launched the National Industry Strategy to triple industrial output and increase the value of the country’s industrial exports to about $149 billion by 2030.
The initiative aims to attract investment, boost non-oil exports and grow the kingdom's gross domestic product.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
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More than 3.5 million Indians reside in UAE
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