SAUDI ECONOMY BOLSTERED BY POSITIVE Q3 DATA

The Saudi economy impressed in the third quarter, with oil and non-oil revenues both showing impressive expansion.

Total revenues in Q3 rose 57% to SAR 223.26 billion, with oil revenues rising63% to SAR 153.95 billion and non-oil revenues also expanding a hefty 45% to SAR 69.31 billion, according to the kingdom’s Ministry of Finance.

Total expenses during the period reached SAR 230.549 billion, an increase of 21% quarter on quarter. The budget deficit for Q3 was SAR 7.287 billion, and the total budget deficit by the end of Q3 2018 amounted to SAR 48.977 billion, compared to SAR 121.458 billion for 2017.

"The improvement in fiscal performance is reflected by the decrease in the deficit with positive oil and non-oil growth, compared to the same period in 2017 and the planned budget,” according to finance minister Mohammed Abdullah Al Jadaan.

“This has been the case despite the increase in spending on various social initiatives, such as the Citizen Account, living allowances, and capital expenses on infrastructure. We are determined to continue our economic reforms to achieve the Fiscal Balance Programme's objectives, by raising revenues, improving government spending efficiency, and stimulating economic growth,” he added.

Total revenues in the first nine months of the year rose 47% to SAR 663.11 billion. Public debt increased from SAR 443.253 billion at the end of 2017 to SAR 549.516 billion at the end of Q3 2018.

Meanwhile, third quarter report of the Saudi Arabian General Investment Authority (SAGIA) has shown a 90% surge in the number of licenses granted to foreign and domestic companies investing in the kingdom to 499, compared to the same period in 2017.

The Purchasing Managers Index (PMI) also suggests Saudi corporations are bullish about economic activity, according to Markit, which tracks global business sentiment.

Business optimism about future output increased markedly in October, with nearly half of all firms surveyed expecting their output to be higher in a year’s time, while the other half expected current levels of output to be sustained, Markit said.

“The rise in Brent oil prices to over USD 80 per barrel on average last month – the highest level since October 2014 – likely contributed to improved business sentiment, and the government also signalled increased budget spending in 2019 in its pre-budget statement released in October.”

The government has been moving quickly to restructure the economy despite higher oil prices.

"The numbers are talking and changing every day for the better. When we look at figures in the last two or three years, for example, non-oil revenues are almost tripled, and we find that the current budget is the largest budget, in the history of Saudi Arabia,” said Mohammed bin Salman bin Abdulaziz, crown prince, vice president of the Council of Ministers, and minister of defence, who is also chairman of the board of directors of the Public Investment Fund, at an investment event in Riyadh.

For 2019, budget will exceed the SAR 1 trillion barrier for the first time, and salaries expenditure will fall to 45%.

"We believe that the unemployment figures will improve next year until we reach 2030," the crown prince said. "The size of the public investment fund, for example, was three years standing at USD 150 billion and this year reached USD 300 billion.”

Ratings agencies have also backed the country’s promising economic growth trajectory. S&P Global Ratings affirmed Saudi Arabia’s A-A2 rating, with a stable outlook, on the back of higher-than-expected revenues.

“The stable outlook is based on our expectation that moderate economic growth will continue through 2021, supported by rising government investment,” said S&P in its October report.

“At the same time, we expect that the Saudi authorities will continue to take steps to consolidate public finances over the next two years, while maintaining the government's large stocks of liquid external assets. We could raise the ratings if Saudi Arabia's economic growth prospects improved markedly beyond our current assumptions.”

Similarly, Moody’s Investor Service raised Saudi Arabia’s GDP growth forecasts for the period 2018 and 2019 to 2.5% and 2.7%, respectively, instead of its previous expectations of 1.3% and 1.5% for the same period, as reported in April this year.

The government's reform programme, including the plans to balance the fiscal budget by 2023, could over time offer a route back to a higher rating level.

"In addition to the moderate funding requirements, the government is able to access ample sources of liquidity, from both domestic or international capital markets and financial reserves. It is unlikely to face problems in financing the fiscal deficit," the ratings agency said.