SAUDI’S 2019 BUDGET TO SPUR ECONOMIC GROWTH

The Saudi economy is expected to keep accelerating over the coming years on the back of reforms and rollout of new fiscal initiatives, according to the government’s 2019 budget.

The Ministry of Finance expects Saudi real GDP to reach 2.1% in 2018, rising to 2.3% next year, 2.2% in 2020, and 2.4% in 2021 – easily its best performance in at least five years.

The ministry said it intends to balance its desire for diversification in a bid to shield the economy from volatile oil prices. Growth will come as a result of the impact of structural economic reforms in the medium and long term.

“This is in addition to the contribution of fiscal reforms impact aimed at reducing the budget deficit to gain investors’ confidence, and the development programmes of some of the productive sectors announced in the Vision 2030 programmes,” the ministry said.

However, the ministry noted that diversification of the kingdom’s resources represents a major challenge to public finances, especially “in view of the fluctuations in world oil prices and the importance of developing non-oil revenues to ensure a stable and sustainable source of financing”.

Initiatives such as the Financial Sector Development Programme (FSDP) have been implemented, while a raft of measures such as the Macro and Fiscal Policy Unit, Debt Management Office, the Spending Efficiency Realisation Centre, Fiscal Balance Programme Office and Non-Oil Revenue Development Centre are all examples of efforts being rolled out to ensure fiscal discipline, so as to keep pace with the Saudi Vision 2030 agenda.

A BALANCING ACT

The suite of measures will address fiscal challenges, as the government targets a deficit of 4.1% of GDP by 2019, which would continue to decline gradually over the medium term, until it reaches fiscal equivalent to around balance by 2023.

Government revenues are expected to jump 11% in the new budget, to reach SAR 978 billion as a number of non-oil revenues, such as valued added tax, expat levy and excise taxes, start generating income for the government.

The government expects revenues to exceed SAR 1 trillion by 2021, growing at a rate of 6% annually.

While revenues are rising, the government is conscious that spending is crucial to stimulate the domestic economy. The transformative changes demanded by new reforms also mean fiscal push to support economic growth.

The 2019 budget estimates spending of more than SAR 1.1 trillion, as the government funds several initiatives, such as the Citizen Account Programme, which provides subsidies to those who are expected to be impacted by the energy price reforms.

The Strategic Procurement Unit and the new Government Tenders & Procurement Law will also contribute to the enhanced efficiency of expenditure.

“Attention to direct the increase in expenditure as much as possible to capital expenditure, which contributes to the development of infrastructure and improvement of government services, while at the same time revitalising the economy and improving the investment environment,” said the ministry.

BOOSTING INVESTOR CONFIDENCE

The preliminary 2019 budget offers a robust plan by the Saudi government to not only stimulate the economy by raising expenditure, but also boost revenues in the midst of oil prices that have been fluctuating and are experiencing some uncertainty.

“To address this challenge, the government has launched several programmes and initiatives within this scope, such as the National Industrial Development and Logistics Programme (NDC), which aims at developing the industry and local content in several sectors, e.g. renewable energy, military industries, exports and mining; as well as improving infrastructure, supporting exports and establishing the logistics services needed to enable the kingdom to be unique industrial and logistic platform between the three continents, which will help create more promising job opportunities for Saudi nationals,” said Dr. Saad Alshahrani, general manager of Macro & Fiscal Policies Unit.

Other initiatives such as the privatisation programmes and structural reforms in the economy, especially in the labour market, are also expected to instil investor confidence.

The development of the non-oil sector will provide fiscal headroom, which would give the government the flexibility for interventions as and when the needs arise. As well as accelerating fiscal and economic goals, it will also deliver the ability to absorb external shocks that the economy might face, the ministry noted.