Riyadh: weaning itself away from reliance on oil export revenue

Riyadh: weaning itself away from reliance on oil export revenue

Saudi may extend non-oil stimulus

Riyadh, which has embarked on the biggest overhaul of the Saudi economy to steer the world’s biggest oil exporter from its near-total dependence on crude, is studying to extend private sector financing beyond 2021

June 2019

Saudi Arabia’s SR 200 billion ($53 billion) lifeline to its non-oil economy may be in place for longer than planned as the kingdom supports industries struggling to cope with reforms that pushed up costs and dampened demand, a top Saudi official told Bloomberg.

Naif Al Rasheed, the managing director of the Private Sector Stimulus Office, said that the programme is earmarking SR36 billion to boost private sector growth this year, on top of the SR40 billion already spent.

The financing could continue beyond the original planned end date of 2021, according to Al Rasheed, who’s in charge of allocating the money and monitoring its effectiveness.

“The office has a long-term mandate to continuously support the private sector through economic cycles,” Al Rasheed said.

As the kingdom’s economic makeover proved disruptive, the stimulus package is aiming to help promote exports, invest in new technologies and reimburse small businesses for an expatriate employment tax. The office has already funded a capital increase for the Saudi Industrial Development Fund and mortgage financing.

Al Rasheed said the Stimulus Office, set up in 2017, is focusing on companies in the real estate, hospitality as well as health care and education sectors.

Additionally, some of the spending will counter the impact of reforms, including higher energy costs and a levy on expatriates that was intended to encourage firms to hire more Saudis.

The office expects to spend SR 22 billion next year as well as SR 25 billion in 2021 and it’s also looking for ways to allocate the remainder of about SR77 billion it has in its budget, added Al Rasheed.

The spending planned by 2021 is expected to contribute more than SR 150 billion to the economy and create more than 86,000 jobs.



Meanwhile, Saudi Arabia’s non-oil sector growth will accelerate to 2.9 per cent in 2019, as the increasing government spending and reforms implementation will likely drive economic growth, said a Ministry of Finance statement.

Welcoming a statement released by the International Monetary Fund (IMF), the ministry said economic reforms and the recovery in the non-oil sector contributed to improving the economic outcomes in 2018, said a Saudi Press Agency report.

Mohammed bin Abdullah Al Jadaan, Minister of Finance, said the IMF statement stresses Saudi government’s strong progress in implementing the economic and structural reforms, especially evidenced by the positive outcomes of the Q1 Budget Report 2019.

He also noted that the IMF statement reflects the key efforts made in developing Saudi Arabia’s financial sector, which realises the strategic objectives of the 2030 Vision.

Additionally, the latest Bank of America Merrill Lynch’s Global Emerging Markets Weekly report revealed that Saudi Arabia’s non-oil activity is likely to pick up going forward.

The Q1 fiscal balance stood at a surplus of SR27.8 billion ($7.4 billion; 0.9 per cent of GDP), with the primary balance registering a surplus of SR32.2 billion ($8.6 billion; 1.1 per cent of GDP). This is due to an increase in Saudi Aramco special dividends to the budget; non-oil revenues broadly on target; and, seasonality and control of spending.

Saudi Aramco’s increase in dividend payments (74 per cent yoy) in Q1 brought annualised oil revenues on track to exceed the budget target. Oil revenues stood at SR169 billion ($45.1 billion) in Q1, up 6 per cent qoq and 48 per cent yoy. This is despite lower oil production and prices qoq.

Ongoing fiscal reforms and possible one-off revenues are keeping non-oil revenues on track. Non-oil revenues stood at SR76 billion in 1Q19, down 8.4 per cent qoq but up 46 per cent yoy. The base effects reflect the one-off inclusion in 2018 non-oil revenues of SR50 billion in cash collected in settlements from the government’s anti-corruption probe.

Moreover, mega-projects provide growth upside from 2020 onwards, the report added.

“The possible finalisation of the Saudi Aramco-Sabic-PIF deal could unlock $69.1 billion of financing to the PIF. This could support a first phase of mega-projects. Authorities suggest the transaction would close in 2020, implying the growth impact of PIF’s off-budget capital spending could start to be felt next year.”

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