ECONOMIC TRENDS

PRE-BUDGET STATEMENT CHARTS PATH TO GROWTH

The Ministry of Finance’s recent pre-budget statement clearly outlines the growth path and key initiatives that will drive the Saudi economy in the near future.

Government measures to maintain and boost the economy during the COVID-19 pandemic are paying off, with non-oil gross domestic product in the first half of the year rising a robust 5.4%, on the back of a 7.5% increase in private sector activity.

The forecast comes as Saudi Arabia’s real GDP grew 1.8% in the second quarter of 2021, with the non-oil sector surging 8.4% and the private sector growing at 11.1%, while the government sector expanded 2.3%. The performance is all the more remarkable given that the oil sector contracted 6.9% during the period, according to the General Authority for Statistics and Information (GASTAT).

As many as 11 of the 13 economic sectors registered positive growth, led by community, social and personal services (+17.1%), wholesale and retail trade, restaurants and hotels (+16.9%), and non-oil manufacturing (+15.3%).
    
Building on these strong numbers, the ministry’s pre-budget 2022 statements expects the kingdom’s overall GDP to grow 2.6% in 2021, with non-oil GDP spearheading growth with a 4.2% expansion.

Finance minister Mohammed Al-Jadaan noted that the non-oil GDP growth rates were driven by Saudi Vision 2030 realisation programmes and mega projects.

He also credited the development of promising sectors in the economy, the progress made in the implementation of the various initiatives that target enhancing investment, and stimulation of industry and non-oil exports, as some of the factors that contributed to economic gains.

“Initial forecasts indicate a growth in real GDP by 7.5% in 2022, benefiting from healthy growth in the non-oil GDP, under the assumption that economic activity will normalise, in addition to the improvement in the kingdom’s balance of trade, as indicated by the positive development in H1 of FY 2021,” according to the ministry’s pre-budget statement.

By 2023 and 2024, real GDP will grow by around 3.6% in 2023 and 3.3% in 2024, taking the kingdom’s nominal GDP to SAR 3.58 trillion.

Another key fiscal initiative by the government is controlling the budget deficit levels, which is forecast to remain at 1.6% of GDP at the end of 2022. However, the finance ministry expects a budget surplus by 2023, which will “come hand in hand with the government’s efforts to raise the quality and efficiency of expenditures and enhance the role of the private sector.”

The government’s total revenue will steadily rise to SAR 992 billion by the end of the projection period in 2024, and total expenditure will remain moderated at SAR 951 billion – lower than the SAR 990 billion budgeted for this year.

The kingdom will also rein in debt, which surged as the government took fiscal measures to fight COVID-19, while pursuing transformative projects. But the government had also acquired more debt to take advantage of rock-bottom interest rates.

“New financing is projected at SAR 127 billion during FY 2022,” the ministry noted. “Gross public debt is projected to be SAR 989 billion, which represents 31.3% of GDP in FY 2022, compared to 30.2% in FY 2021, while allowing flexibility in meeting financing needs according to market developments.”

In the medium-term, public debt levels are projected to remain constant, while debt-to-GDP ratio is projected to decrease to 27.6% in 2024, the ministry noted.

The kingdom’s fiscal discipline, promising growth prospects and a favourable commodity price environment has placed it in an enviable position.

In September, S&P Global Ratings affirmed Saudi Arabia's A- credit rating with a stable outlook, expecting a rebound in growth through 2024 driven by higher oil prices, increased OPEC production, and a large vaccine rollout in the kingdom.

"In 2021, the country's economy has begun to rebound, as the global economy emerges from the pandemic and oil prices have improved, although these trends remain partially counterbalanced by Saudi Arabia and OPEC constraining oil production," S&P Global Ratings said in the report.

S&P also praised the kingdom’s effort to diversify from its oil sector.

"The authorities will also keep on maintaining efforts to rebalance the hydrocarbon industry away from its reliance on upstream crude production and export, toward natural gas and value-added midstream hydrocarbon activities such as refining, petrochemicals, chemicals, and minerals," it said. "Several large hydrocarbon projects will continue to ramp up production in 2021-2024."

In July, Fitch Ratings had also affirmed the kingdom’s credit rating at A, and revised its outlook to stable from negative, citing strong sovereign assets and high external financial resources as one of the many factors ensuring stability.