SAUDI PRIVATE SECTOR DRIVES ECONOMIC GROWTH

Moody’s Investors Services noted in its report that the Ministry of Finance remains committed to the reform programme, which will further enhance the country’s economic resilience. To this end, real GDP growth rates in Q1 of 2019 were around 1.7% compared to 1.4% in Q1 of 2018. In addition, the real growth rate of non-oil sector was 2.1%, driven by the private sector’s 2.3% expansion compared to 1.7% in the same quarter last year.

For its part, the Ministry of Finance has noted that the budget deficit is well within the parameters set for the 2019 budget.

“Whilst we are committing to focus increased investment in key Vision 2030 areas, we are also improving our efficiency and effectiveness of that spending,” the ministry said. “We also have one of the strongest reserves in the world and the country’s financial assets substantially exceed its liabilities.”

Moody’s also noted that a package of new laws draftedas part of the Vision 2030 plan will attract more private investment and enhance the credit quality of Saudi’s infrastructure deals.

The new laws, which will exempt infrastructure investors from certain existing Saudi laws and ease real estate ownership restrictions, will improve credit quality by making Saudi public sector transactions and legal processes more transparent and predictable.

"While the new laws will boost investment in established sectors like power and water, they will be especially beneficial for transactions in new sectors such as social infrastructure because they will reduce uncertainty for creditors," said Kunal Govindia, a Moody's assistant vice president and analyst.

Moody’s reiterated its A1 rating to the kingdom, with a stable outlook.

Saudi Arabia’s non-oil sector GDP rose around 2.94% during the second quarter, beating the 2.47% growth registered during the same period last year, according to the General Authority for Statistics.

Encouragingly, private sector economy led the way, rising 3.42% (versus 1.93% last year), while the government sector also edged up 1.76% during the period (3.80% in the previous year). The oil sector declined 3.02% during the quarter, but the non-oil sector growth was enough to push the overall GDP growth for the sector 0.46% higher.

Some sectors drove economic growth during the second quarter. Transportation, storage and information, and communications expanded 6.36%, while wholesale and retail, trade, restaurants and hotels posted a 5.78% increase. Finance, insurance, real estate and business service jumped 5.44%, while construction rose 4.8%, in a strong showing across the board. However, electricity sector was a laggard as it fell 6.3%, while manufacturing declined 2.29%.

Indeed, business conditions improved at its fastest pace in three months, according to the IHS Markit Saudi Arabia PMI Index.

September data indicated the fastest improvement in business conditions across Saudi Arabia's non-oil private sector for three months, amid further increases in new business from both domestic and foreign markets, the IHS noted in its monthly report, Output expanded at the fastest pace since December 2017, enabling firms to take on additional staff at the most marked rate in 18 months.

“The rate of growth of new export orders, meanwhile, quickened from August and was solid,” IHS noted. “The non-oil private sector jobs market improved markedly during September. The rate of job creation was the fastest in 18 months. Some panellists stated that they had raised their headcounts in order to improve their product quality.”

Saudi Arabia is also looking to tap into its rich heritage and cultural sites with the launch of the e-tourist visa, as part of the Vision 2030 strategy, to attract 100 million visitors annually by 2030 compared to 41 million currently.

The e-tourist visa will be made available to 49 countries in the first phase through the website or upon arrival in the kingdom, and will be rolled out to other countries soon.

“By 2030, the kingdom will be one of the top five countries receiving foreign tourists from all over the world, with revenues of up to 10% instead of the current 3% of gross national income, while the number of jobs in the sector of tourism will reach 1,600,000 jobs compared to just 600,000 jobs right now,” according to the Saudi Commission for Tourism and National Heritage.

The non-oil economy is already playing a bigger role in building economic momentum and will remain a key driver as the Vision 2030 programme rolls out.