Saudi Arabia records budget surplus for first time since 2014

The kingdom reported a 27.8 billion riyals first quarter surplus as oil prices rebounded and economic momentum gained pace

Financial Sector Conference starts 1st session in Riyadh
Powered by automated translation

Saudi Arabia, the Arab world's largest economy, recorded its first quarterly budget surplus since the 2014 oil-price slump, the kingdom’s finance minister said.

The first-quarter surplus for Opec’s top oil exporter reached 27.8 billion Saudi riyals (Dh27.2bn), as income from hydrocarbons rose and revenue from non-oil industries expanded, Mohammed Al Jadaan told delegates at a financial conference in Riyadh.

“This year's budget is a solid proof of our commitment to Vision 2030,” Mr Al Jadaan said on Wednesday. “The government is moving ahead with its comprehensive reform programme aimed at managing public finance, boosting transparency and supporting the private sector development”.

Saudi Arabia, which still relies on sale of hydrocarbons for a major chunk of its revenue, is undergoing a massive economic overhaul since the three-year oil price-slump that dragged crude from a mid-2014 peak of $115 per barrel to below $30 per barrel in the first quarter of 2016. The price of oil rallied in the second half of 2018, breaching $80 per barrel, which strengthened the kingdom’s financial muscle. Brent is currently hovering around $75 per barrel.

Despite the boost in hydrocarbon revenue, Riyadh is sticking with its economic diversification plans to lessen dependency on oil.

The government has increased spending to boost economic growth with an expansionary budget for this year and imposed a value-added tax last year to increase its non-oil revenues.

Riyadh is moving forward with its reform agenda under the Vision 2030 programme, which includes managing public finances, selling stakes in some of the state-owned entities such as Saudi Aramco and expanding the country's non-oil industrial base.

Total spending increased 8 per cent in the first quarter, while revenue surged 48 per cent, Mr Al Jadaan said.

Non-oil domestic output increased to 2.1 per cent in 2018, compared to 1.3 per cent in 2017, he said. The growth of the finance, insurance, real estate and business services sectors, which accounts for about 10 per cent of the Saudi Arabia's total gross domestic product, also expanded at about 3.3 per cent per annum in the past five years, he added.

Monica Malik, chief economist at Abu Dhabi Commercial Bank, said: “The magnitude of the rise in both oil and non-oil revenues [during the first quarter] looks surprising to us, especially given the production and price developments in the oil market and the fact that major fiscal reforms were introduced.

"The rise in government spending was in line with our expectations and the expansionary budget for 2019. We are forecasting high single-digit increase in government spending this year.”

Development of the country's private sector, especially its financial markets, to attract foreign direct investments is also a key pillar of the Vision 2030 economic transformation programme. Although foreign lenders are keen to establish a presence in the kingdom, only a handful of them such as US lenders JP Morgan and Citi, the UK's HSBC and Standard Chartered, and the UAE's First Abu Dhabi Bank and Emirates NBD have managed to gain entry.

On Wednesday, the kingdom's financial market regulator the Saudi Arabian Monetary Authority added Credit Suisse to that list, following the council of ministers' approval, allowing the Zurich-based lender to operate in the country.

Banks want to capitalise on the multibillion-dollar advisory and financing opportunities as Saudi Arabia continues to implement its economic reforms. Institutions and foreign investors are equally keen to be a part of the privatisation process that includes the public listing of Aramco, the world's biggest oil producing company, which is estimated by the government to yield $100bn.

BlackRock, the world's biggest asset manager, said it is planning to open an office in Saudi Arabia, its chief executive Larry Fink said on Wednesday at the conference.

Earlier this month, Armaco’s debut $12bn international bond sale was a clear bellwether of investor appetite. The bond sale attracted a record orderbook of more than $100bn.

"Aramco – sooner than you think – will be accessing equity markets” said Saudi Energy Minister Khalid Al Falih, referring to the IPO that the giant oil company is planning. Mr Al Falih said the kingdom plans to sell more bonds and the latest bond debut is "only the beginning."

Saudi Arabia’s Tadawul stock exchange, the biggest bourse in the Arab world, is also looking to increase ownership levels in the kingdom’s stocks by foreign investors to 10 per cent by the end of 2020, Tadawul chief executive Khalid Al Hussan said in Riyadh on Wednesday.

"We will continue to work to develop and enhance confidence in the Saudi financial market so that we can become one of the top-ten financial markets in the world by 2030," Mr Al Jadaan said.