SAUDI LOOKS TO STIMULATE ECONOMY WITH 2019 BUDGET

The Saudi budget for2019 is the largest in the country’s history and will play a vital role in stimulating the economy at a time of slowing global economic growth and below-par crude oil prices.

The Saudi Ministry of Finance unveiled on the first of January its latest budget, which showed a 7.3% increase in total expenditures compared to 2018, driven by a 19.9% rise in government investments to finance the initiatives and projects of Vision 2030 Realisation Programmes. These initiatives include housing plans, mega projects designed to stimulate the economy, and infrastructure developments geared towards creating more jobs.

The government expects GDP expansion to reach 2.6% this year, beating 2018’s 2.3% growth.

The total budget for the year stands at SAR 1.1 trillion, reflecting a strong intention by the government to prioritise economic growth, despite the recent dip in oil prices and the OPEC+ output cuts for 2019.

This increase will drive the expansion of expenditure on the Vision Realisation Programmes and Initiatives, and will increase expenditure on social welfare and investment to stimulate economic activities and infrastructure development; thus enhancing economic activity of the private sector and creating more job opportunities,” the ministry said.

Education will receive the biggest allocation of SAR 193 billion in the budget, with military securing SAR 191 billion. Health and social development will see SAR 172 billion in allocation and general items at SAR 156 billion.

Capital expenditure for 2019 is estimated at SAR 246 billion, accounting for 22.2% of total expenditures, an increase of 19.9% compared to 2018.

At the other end of the ledger, revenues are expected to reach SAR 975 billion, a 9% increase over 2018, as the government expands its revenue base in the form of value added tax, expatriate levies and energy price reform.

Indeed, tax revenue is expected to surge SAR 183 billion during the year, up by 10.8% compared to 2018, and SAR 201 billion in 2021, due to economic growth, better taxpayer compliance, and an improvement in tax collection.

While non-oil revenues are anticipated to increase, oil-related revenues will also play a crucial role, rising 9% to SAR 662 billion, compared to SAR 607 billion last year.

Meanwhile, the budget deficit will shrink to SAR 131 billion in 2019, or 4.2% of GDP, compared to SAR 136 billion the previous year, according to the ministry.

Official data shows public debt is estimated to have reached SAR 560 billion, or 19.1% of GDP, in 2018. The Debt Management Office (DMO) has put in place a robust strategy to streamline its public debt management, while also developing an annual borrowing plan to secure the kingdom’s financing requirements.

However, the government has a path to balancing the budget in the next few years.

In the medium term, fiscal and economic reforms aim to accelerate the economic transformation and ensure fiscal sustainability through achieving economic growth and maintaining low budget deficit ratios. In 2023, the budget is estimated to achieve a surplus of SAR 1 billion,” the ministry noted.

While the government is injecting funds in key sectors to stimulate growth, there is also a concerted drive to create a legal and business framework that attracts foreign investment.

For example, the Capital Markets Authority has lowered the minimum size of assets that foreign investors must hold to qualify to trade on the stock market. In addition, foreign companies have been allowed to fully own engineering companies – under certain conditions.

Foreign investors have also received the green light to invest in numerous new sectors including recruitment agencies, visual audio services, road transport services, and real estate brokerage.

A privatisation programme is also under way to transfer ownership of public assets to private sector or other government entities to improve efficiency. These include sports clubs, flour mills of the Saudi Grains Organisation (SAGO), projects of Saline Water Conversion Corporation (SWCC) and Ministry of Environment, Water and Agriculture. The Ministry of Finance also noted that some Public Investment Fund assets will be privatised, and public real estate assets will be allocated for private sector’s use.

Investment stimulus and government spending are expected to boost real economic growth rates in 2019 and mitigate the negative impact of some reforms, with the increase in government capital spending in 2019 estimated to be about 19.9% higher than in 2018,” the ministry noted.

Also, positive growth in private investment and consumption is anticipated to continue in 2019. Therefore, and given the positive impact of Vision 2030 programmes and initiatives mentioned previously, private investment is expected to see continued growth from 2019 to 2023.