Lower government spending next year will reduce Saudi Arabia's medium-term fiscal vulnerabilities to lower oil prices and the kingdom is on course for a balanced budget by 2023, the Institute of International Finance (IIF) said.
Opec’s biggest oil exporter is now on a “much more secure” fiscal trajectory than a few months ago given the efforts to restrain spending, said Garbis Iradian, IIF's chief economist for the Middle East and North Africa.
The kingdom’s ability to balance the budget in the next three years is now more likely with public debt remaining below 30 per cent of gross domestic product (GDP) and IIF’s assumption of oil being slightly above $60 per barrel. However, a significantly lower price would mean the budget deficit remains large.
Preliminary estimates by Saudi Arabia have put actual spending in 2019 at 1.05 trillion Saudi riyals (Dh1.03tn), well below the budgeted 1.11tn riyals. While defence spending slightly exceeded the budgeted amount, this was more than offset by lower capital expenditures.
Despite lower oil prices in 2019, revenues have risen on the back of a special oil dividend transfer from Saudi Aramco, which led IIF to revise its estimate of the kingdom's fiscal deficit for 2019 to 4.7 per cent of GDP from 6.2 per cent, it said.
“We have also lowered our forecast for the fiscal deficit for 2020 from 7.5 per cent of GDP to 6.6 per cent in 2020,” Mr Iradian said. “This still represents a widening compared with 2019 due to lower oil revenues.”
The Public Investment Fund, the sovereign wealth fund of Saudi Arabia, which is the key pillar of Riyadh’s economic diversification agenda, has its coffers full after Saudi Aramco’s initial public offering and is taking centre stage in terms of the public spending in the country. It is already behind the mega $500 billion (Dh$1.8tn) futuristic Neom economic free zone and the several other giga-projects in the country.
PIF is one of the biggest investors in the local equity markets and holds stakes on behalf of the government across sectors including banking and finance, industries, defence and mining.
The 2020 budget announced earlier this month sets expenditures at 1.02tn riyals, which is 2.7 per cent lower than the preliminary estimates for 2019. Given the recent Opec+ agreement, and as the Jizan refinery became fully operational, IIF expects oil production to increase slightly in 2020, following a decrease of 3 per cent in 2019.
“Based on oil revenues included in the 2020 budget and our assumption of crude oil production, we estimated the oil price assumption in the 2020 budget at $60 per barrel,” Mr Iradian said.
Despite fiscal headwinds, non-oil growth is expected to remain solid at 2.7 per cent, supported by monetary easing and further recovery in private sector activity, which will be supported by interest rate cuts, according to IIF.
The kingdom’s Purchasing Manager’s Index, a composite gauge reflecting the health of the non-oil economy, rose to 58.6 in November - the highest in four years - and point of sale transactions, a proxy for retail sales, continues to expand.
Credit in Saudi Arabia has also picked up to 3.5 per cent year-on-year in October, with a recovery in lending for construction and manufacturing.
“We expect overall real GDP to shift from a contraction of 0.3 per cent in 2019 to a growth of 1.9 per cent in 2020, as crude oil production is projected to increase slightly,” Mr Iradian said.
more from Janine di Giovanni
Company profile
Name: Steppi
Founders: Joe Franklin and Milos Savic
Launched: February 2020
Size: 10,000 users by the end of July and a goal of 200,000 users by the end of the year
Employees: Five
Based: Jumeirah Lakes Towers, Dubai
Financing stage: Two seed rounds – the first sourced from angel investors and the founders' personal savings
Second round raised Dh720,000 from silent investors in June this year
GIANT REVIEW
Starring: Amir El-Masry, Pierce Brosnan
Director: Athale
Rating: 4/5
Another way to earn air miles
In addition to the Emirates and Etihad programmes, there is the Air Miles Middle East card, which offers members the ability to choose any airline, has no black-out dates and no restrictions on seat availability. Air Miles is linked up to HSBC credit cards and can also be earned through retail partners such as Spinneys, Sharaf DG and The Toy Store.
An Emirates Dubai-London round-trip ticket costs 180,000 miles on the Air Miles website. But customers earn these ‘miles’ at a much faster rate than airline miles. Adidas offers two air miles per Dh1 spent. Air Miles has partnerships with websites as well, so booking.com and agoda.com offer three miles per Dh1 spent.
“If you use your HSBC credit card when shopping at our partners, you are able to earn Air Miles twice which will mean you can get that flight reward faster and for less spend,” says Paul Lacey, the managing director for Europe, Middle East and India for Aimia, which owns and operates Air Miles Middle East.
RACE CARD
5pm: Wathba Stallions Cup – Handicap (PA) Dh70,000 (Turf) 2,200m
5.30pm: Khor Al Baghal – Conditions (PA) Dh80,000 (T) 1,600m
6pm: Khor Faridah – Handicap (PA) Dh80,000 (T) 1,600m
6.30pm: Abu Dhabi Fillies Classic – Prestige (PA) Dh110,000 (T) 1,400m
7pm: Abu Dhabi Colts Classic – Prestige (PA) Dh110,000 (T) 1,400m
7.30pm: Khor Laffam – Handicap (TB) Dh80,000 (T) 2,200m
The Bio
Favourite Emirati dish: I have so many because it has a lot of herbs and vegetables. Harees (oats with chicken) is one of them
Favourite place to go to: Dubai Mall because it has lots of sports shops.
Her motivation: My performance because I know that whatever I do, if I put the effort in, I’ll get results
During her free time: I like to drink coffee - a latte no sugar and no flavours. I do not like cold drinks
Pet peeve: That with every meal they give you a fries and Pepsi. That is so unhealthy
Advice to anyone who wants to be an ironman: Go for the goal. If you are consistent, you will get there. With the first one, it might not be what they want but they should start and just do it
Zayed Sustainability Prize
PRO BASH
Thursday’s fixtures
6pm: Hyderabad Nawabs v Pakhtoon Warriors
10pm: Lahore Sikandars v Pakhtoon Blasters
Teams
Chennai Knights, Lahore Sikandars, Pakhtoon Blasters, Abu Dhabi Stars, Abu Dhabi Dragons, Pakhtoon Warriors and Hyderabad Nawabs.
Squad rules
All teams consist of 15-player squads that include those contracted in the diamond (3), platinum (2) and gold (2) categories, plus eight free to sign team members.
Tournament rules
The matches are of 25 over-a-side with an 8-over power play in which only two fielders allowed outside the 30-yard circle. Teams play in a single round robin league followed by the semi-finals and final. The league toppers will feature in the semi-final eliminator.
French business
France has organised a delegation of leading businesses to travel to Syria. The group was led by French shipping giant CMA CGM, which struck a 30-year contract in May with the Syrian government to develop and run Latakia port. Also present were water and waste management company Suez, defence multinational Thales, and Ellipse Group, which is currently looking into rehabilitating Syrian hospitals.
Mohammed bin Zayed Majlis
Top New Zealand cop on policing the virtual world
New Zealand police began closer scrutiny of social media and online communities after the attacks on two mosques in March, the country's top officer said.
The killing of 51 people in Christchurch and wounding of more than 40 others shocked the world. Brenton Tarrant, a suspected white supremacist, was accused of the killings. His trial is ongoing and he denies the charges.
Mike Bush, commissioner of New Zealand Police, said officers looked closely at how they monitored social media in the wake of the tragedy to see if lessons could be learned.
“We decided that it was fit for purpose but we need to deepen it in terms of community relationships, extending them not only with the traditional community but the virtual one as well," he told The National.
"We want to get ahead of attacks like we suffered in New Zealand so we have to challenge ourselves to be better."
