SAUDI ECONOMY DELIVERS SOLID START TO THE YEAR

Saudi Arabia’s first-quarter revenues surged 48% compared to the previous year, with both oil and non-oil sectors registering impressive growth.

Oil revenues stood at SAR 169.1 billion during the quarter, a 48% jump from the SAR 113.9 billion recorded during the same period in 2018, according to the Ministry of Finance.

More crucially, non-oil revenues expanded 46% to SAR 76.3 billion in the first three months of 2019, as against SAR 52.3 billion in the first quarter of last year.

Taxes on goods and services climbed 82%, as the government expanded levies on oil products, while value added tax contributed SAR 41.1 billion. Taxes on income, profit and capital gains rose 11% to SAR 2.74 billion amid higher corporate profitability and improved economic conditions.

Other revenues jumped 8%, while taxes on trade and transactions contracted 8% during the quarter, compared to the previous period.

Meanwhile, expenditures rose only 8% during the quarter amid a strong effort to curtail spending. Compensation of employees, the biggest expense item, was up 8%, while expenditure of goods and services increased 51%.

Mohammed bin Abdullah Al-Jadaan, the minister of finance, noted that fiscal targets for 2019 are still on track.

“Expenditure outlays on development projects are expected to increase during the remainder of the year especially on Vision Realisation Programs and private sector development programmes, alongside increasing expenditure on social protection,” the minister stated. “The latter includes spending on education, health, social development, Citizen Account, social security benefits, cost of living adjustment and student rewards.”

Meanwhile Al-Jadaan expects continued growth in non-oil revenues, contributing to reaching the budget deficit and debt targets.”

The surplus for the quarter stood at SAR 27.8 billion.

Other economic indicators were also impressive. Markit’s latest purchasing managers index noted a robust increase in business activity across Saudi Arabia’s non-oil private sector, with the rate of growth quickening for the fourth month in a row to the fastest since December 2017.

“Firms that reported higher output in April often linked this to stronger underlying demand and an associated rise in new business,” Markit said. “Growth of new work eased slightly from March’s near four-year high, but nonetheless remained sharp overall and stronger than that of output. New export orders meanwhile rose modestly in April compared with total new business.”

Moody’s Investor Service also affirmed its credit opinion on Saudi Arabia to A1, stable.

The agency raised its GDP growth projections for the kingdom’s economy from 1.5% to 2.7% for 2019. The revision in the projections came as Moody’s expects higher oil production along with developments in the non-oil sector to boost the Saudi economy.

“Over the next five years, Moody's expects that Saudi Arabia's economy will grow at a rate of 2% to 2.5% per year,” the ratings agency said. This is markedly lower than the 4.6% growth rate recorded during 2011-16. However, progress on the government's plans to diversify Saudi Arabia's economy away from oil could lift the country's longer-term growth potential,” Moody’s noted.

“The country's very high fiscal strength stems from the government's large financial buffers, relatively low but rising debt levels, and high debt affordability.”

Furthermore, Moody’s cut projections of government deficit for 2019 to 3.6%, from previous forecasts of 5.2%. The agency commended the kingdom’s financial management and noted that the government’s reform programme, including plans to balance fiscal budget by 2023, could lead to higher ratings.

Saudi Arabia's investment environment is also improving, with Saudi Arabian General Investment Authority issuing 267 new foreign investors in the first quarter of 2019, a 70% increase compared to the first quarter of 2018.

Key growth sectors include education and healthcare, following the recent lifting of foreign ownership restrictions in these industries. During the first quarter, nine new education-related companies were established, compared to just one during the same period last year.

"Other sectors that saw strong growth in Q1 2019 include the construction industry, which saw 39 new foreign investors receive business licenses, compared to only 22 in Q1 2018," SAGIA said.

In the mining and quarrying industry, 11 new foreign companies received licenses, compared to only three in the first quarter of last year. There were also a record number of new foreign entrepreneur licenses issued in the first quarter, with 45 new start-ups setting up in the kingdom, compared to 13 in the same period last year.