SAUDI GDP POISED TO RECOVER IN 2021

Saudi Arabia’s second quarter budget highlights the resilience of its economy.

The government’s revenue during the period reached SAR 134 billion, a 49% decline year on year, with both oil and non-oil revenue falling, according to Ministry of Finance data.

Oil revenue reached SAR 96 billion, down 45% from the previous year, owing to lower commodity prices, which managed to rebound by the tail end of the second quarter and are expected to remain stable for the rest of the year. The quarter captured the full impact of the coronavirus and the downturn in economic activity amid temporary closures of businesses.

With the economy in lockdown, non-oil revenue also fell 55% compared with the same period last year, which was expected as the government has deferred tax payments and other fees during the downturn. However, the increase in value added tax in the second half should help regain some revenues.

On the other side of the ledger, government expenses also fell 17% to SAR 243 billion in the second quarter. In the first half of the year, public administration costs rose 10% to SAR 14.8 billion compared to the same period last year, as the government spurred into action to ensure citizens remain safe and secure.

Education saw a modest 2% jump to SAR 95.9 billion as authorities looked to maintain schooling despite the lockdown. Infrastructure and transportation saw a 5% increase to SAR 27.3 billion to support the economy and put in place safe-distancing protocols.

Other sectors understandably saw contraction with municipal services expenditures down 8% to SAR 18.9 billion, and economic resources falling 43% to SAR 24.8 billion.

The economic data was predictable as countries across the world have seen similar data emerging, with governments asking their citizens to stay at home, restricting non-essential business activity, temporarily closing their borders and reducing movement. The bounce back is also expected to be equally vigorous as demonstrated by other economies that were hit by the virus first.

The International Monetary Fund (IMF) expects global GDP growth to contract 4.9% in 2020, but rebound next year.

“The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4%,” the IMF said in a report in June.

Moody’s Investors Service said the kingdom’s credit profile remains robust while the country enjoys a “high level of economic strength.”

“The Saudi government has made some initial progress in its ambitious and comprehensive reform plans to diversify fiscal revenue streams and the economy away from hydrocarbons," said Alexander Perjessy, a senior analyst at Moody’s, in a report in July.

The ratings agency expects the kingdom’s GDP to grow at an average of 3% annually until 2024. Saudi GDP fell 1% in the first quarter, according to the Saudi Arabian Monetary Authority.

“Evidence that the government is able to contain the deterioration in its balance sheet and stabilise and ultimately reverse the debt trajectory through implementation of additional fiscal consolidation measures, possibly supported by a faster recovery in oil prices, would likely lead to the outlook being stabilised,” the ratings agency said.

Saudi Arabia’s fiscal deficit in the second quarter stood at SAR 109 billion, taking the deficit for the first half to SAR 143.4 billion.

Public debt reached SAR 820 billion at the end of the first half of 2020. Year-to-date domestic issuance and borrowings were at SAR 96.9 billion, with domestic sukuk issuances equalling SAR 46.1 billion over the same period.

The kingdom also announced the early redemption of a portion of its outstanding bonds maturing in August, September, November and December of this year valued at SAR 34.26 billion, according to the Ministry of Finance.

The efforts are part of the National Debt Management Center’s (NDMC) initiative to streamline local issuances under the framework of the country’s domestic sukuk programme. As part of that effort, the NDMC also issued new longer-term Islamic bonds.

“The new sukuk issuances comprise four tranches with a total value of SAR 34.645 billion,” the ministry said. “The first tranche with an amount of SAR 8,970 million maturing in 2024, the second tranche with an amount of SAR 6,025 million maturing in 2028, the third tranche with an amount of SAR 6,500 million maturing in 2032 and the fourth tranche with an amount of SAR 13,150 million maturing in 2035.”