SAUDI BOOSTS ECONOMIC RECOVERY WITH NEW BUDGET

Saudi Arabia’s budget for 2021 will accelerate economic and fiscal reforms in line with its Vision 2030.

The Ministry of Finance said the newly announced budget aims to support the continued implementation of the Vision Realization Program, while also supporting services, social benefits andsubsidy scheme for citizens.

The ministry expects the economy to rebound 3.2% in 2021, from a decline of 3.8% in 2020, on the back of rising economic activity, an improved trade balance with its partners and easing of global lockdown measures.

“This comes alongside other government initiatives that support fiscal stability, and the persistent effort by the government to implement medium- and long-term structural reforms aimed at achieving economic diversification and fiscal sustainability within the framework of the Saudi Vision 2030,” the ministry said.

The government expects total revenues to rise SAR 846 billion in 2021, an increase of 9.8% compared to 2020, while revenues will be reined in to SAR 990 billion next year, compared to just over SAR 1 trillion this year. That would leave the kingdom with a budget deficit of SAR 145 billion, nearly half of the 2020 deficit.

As a percentage of GDP, debt would stand at 32.9% in 2021, compared to 34.4% in 2020.

The target is to gradually reduce the budget deficit over the medium term to reach 0.4% of GDP by 2023.

After declines in the first quarter and second quarter of the year, the third quarter is expected to see a rebound.

The Ministry of Finance noted that monthly economic indicators witnessed a significant improvement during the quarter due to the gradual reopening of economic activities last June, which were reflected in the local demand indicators mainly private consumption and some production indicators.

“Several sectors resumed activities at higher levels, supported by government-implemented measures, including the extension of some stimulus measures for one month in July,” the ministry said.

“Also, the careful resumption in economic activities helped contain the spread of the virus, thus continuing the gradual return of economic activities without having to reimpose precautionary and lockdown measures, as [what] happened in some other countries.”

Like the rest of the world, the current growth rates in Saudi Arabia reflect the lockdowns and slowdown in the economy. The kingdom’s GDP declined 7% in the second quarter, on the back of an 8.2% contraction in non-oil economy and 5.3% drop in the oil sector, according to the General Authority for Statistics.

The labour market also saw unemployment reach 15.4% in the second quarter, but it is expected to rebound as businesses reopen and economic activity resumes.

The new plans unveiled by Saudi authorities should ensure that the recent data is a blip and normalcy will resume.

Investor confidence also remains high, with Moody’s Investors Service assigning a A1/Aaa.sa rating to the kingdom’s domestic sukuk issuance programme.

“It also reflects the effectiveness of structural reforms and financial and economic policies aimed at enhancing, diversifying and sustaining economic growth to achieve comprehensive economic and social development,” said Mohammed Al-Jadaan, minister of finance, acting minister of economy and planning, and the head of the Financial Sector Development Program.

“These positive estimates from credit rating agencies confirm the great confidence in the Saudi economy, the strength of the kingdom's financial status and its ability to continue growth and face challenges, especially in light of the difficult crises and exceptional circumstances the world is currently witnessing.”

Reducing carbon emissions, raising corporate governance standards and generating inclusive growth (social licence) are also emerging as new ways to unlock growth in the Saudi economy.

A new survey by HSBC Middle East reveals that 36% of investors in the region have firm-wide policies around environmental, social and governance (ESG) issues, with Saudi institutions demonstrating above-average commitment to responsible investing principles.

Saudi Electricity Corp.’s landmark issuance of a USD 1.3 billion green sukuk in September, highlights the desire of large Saudi corporations to protect the environment, fulfil their social commitments and boost their governance standards.

Overall, 93% of Middle East equity and bond issuers said ESG issues were important to them, however only 65% of regional investors shared that sentiment in the survey. A third of the regional institutions surveyed said that ESG was “very important” – and that sentiment stood at an elevated 43% among Saudi institutions.

The global COVID-19 pandemic has further accelerated engagement with ESG issues in the Middle East.

“Above-average proportions of issuers (44% versus the 41% global average) and investors (30% versus 29%) now believe more strongly than before in the importance of becoming sustainable or considering ESG issues in investing,” the survey noted. “Saudi investors have particularly increased their ESG focus.”