ECONOMIC TRENDS

SAUDI ECONOMY SPRINGS BACK FROM PANDEMIC BLUES

The International Monetary Fund (IMF) said Saudi Arabia’s Vision 2030 played a key role in helping the country fight the pandemic.

The massive programme has been instrumental in retooling the economy and has reenergised a number of sectors including healthcare, manufacturing, retail, logistics and financial services, and a range of new sectors such as renewable energy, digital services and small to medium enterprises.

“Efforts to establish a robust structure of interagency co-ordination and governance, the growing digitalisation of government and financial services, reforms to increase labour market mobility, and strong fiscal and financial policy buffers all equipped the economy to manage the crisis,” the IMF said in its economic outlook on the kingdom.

The Saudi Vision 2030 drive was under way well before COVID-19 disrupted global economy in March of 2020, which helped blunt the pandemic’s impact on Saudi economy. 

The IMF also points to policy reforms and strengthening of legal infrastructure for businesses as positive moves. 

“The PPP/asset sales programme has considerable scope to increase the efficiency of capital allocation and service provision for the government,” the IMF noted. “The growing role of digitalisation and the move to e-government, e-commerce, and digital banking have the potential to boost productivity given the young and tech-savvy population.”

Saudi Arabia’s GDP is expected to grow 2.1% in 2021 and 4.8% in 2022, as the economy gathers steam and more Vision 2030 programmes are rolled out.

Non-oil growth is projected at 3.9% in 2021 and 3.6% in 2022 compared to a contraction of 2.3% in 2020. Real oil GDP growth is projected at -0.5% in 2021 due to the kingdom’s adherence to OPEC quotas, the IMF forecasts.

Responding to the IMF’s report, Mohammed Al-Jadaan, minister of finance, said that the kingdom's success has been achieved despite the impact of COVID-19 pandemic, fluctuations in oil prices, sharp economic swings, declining global demand, receding growth and other challenges that the Saudi government has risen to. 

“The continued implementation of Vision 2030 programmes, plans and goals has enabled the kingdom to introduce many economic and structural reforms that demonstrate the efforts in developing the financial sector in the kingdom and achieving fiscal sustainability that enhances the Saudi economy's strength despite all the challenges,” the minister stated.

The Saudi economy continues to strengthen in the first quarter. Ministry of Finance’s data shows total government revenues rose 7% in the first three months of 2021 compared to the same period last year. This was achieved despite a 9% drop in oil revenues and a 10% decline in taxes on income, profits and capital gains.

However, the kingdom’s timely move to raise value added tax boosted revenues from taxes on goods and services by 75% and other taxes by 46%.

Parallel to that, expenditures declined 6% during the quarter, which led to the deficit reaching SAR 7.44 billion. Infrastructure and transportation saw a 16% drop, general items also fell 16%, while military spending declined 18%.

The kingdom has spent 21% of the total budget of SAR 990 billion for the year during the first quarter.

In addition, the government tapped SAR 23.4 billion in financing from external borrowing and SAR 6.1 billion from domestic borrowing, taking its financing for the quarter to SAR 29.6 billion, the ministry data shows.

The private sector is also bouncing back with more robust economic activity and brisk trade being reported by purchasing managers.

The IHS Markit’s latest PMI index shows economic growth accelerated in the country’s non-oil sector in April.

Business activity rose at the sharpest rate for three months, as new sales increased markedly. Moreover, firms expanded staff numbers for the first time in five months and to the greatest extent since November 2019.

“The Saudi Arabia PMI rebounded in April to indicate a strengthening of growth across the non-oil economy. New orders picked up at the quickest rate for three months as business conditions continued to recover from COVID-19,” said David Owen, economist at IHS Markit. “The rise helped lead to a renewed uplift in employment, with the pace of increase the fastest since November 2019.”

Crucially, the respondents reported that private sector employment in the kingdom has risen for the first time in five months, while the rate of job creation was the sharpest since late-2019.