ECONOMIC TRENDS

SAUDI LAYS GROUNDWORK FOR FUTURE ECONOMIC GROWTH

Saudi Arabia’s pre-budget for 2023 continues to focus on accelerating the country’s growth even as global economic rebound hits a snag.

In September, the Ministry of Finance unveiled the pre-budget statement for fiscal year 2023, with a SAR 9 billion surplus, or 0.2% of total GDP. Total expenditures is expected to stand at around SAR 1,114 billion, while total revenues will reach SAR 1,123 billion.

“The pre-budget statement for the fiscal year 2023 reflects progress in implementing programmes and projects that support economic growth and diversification, improving public services, and enhancing programmes for welfare and social protection systems, while preserving the gains made during previous years in public finance, in addition to improving and developing the legislations and policies that led to the kingdom's progress in indicators of ease of doing business, ensuring continued economic performance and growth to achieve the fiscal and economic objectives for 2023,” the ministry said, noting that the indicators show growth is expected to continue in the medium term.

The proactive structural and fiscal reforms that were implemented under the Vision 2030 initiative are key in enabling the kingdom to achieve high economic growth rates during the current year, sustaining the decrease in unemployment among Saudis, and controlling inflation compared to international rates, the 2023 pre-budget document noted.
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The government has made an impressive effort to rein in high deficit rates to reach fiscal balance in the medium term, according to Mohammed bin Abdullah Al-Jadaan, minister of finance.

“The second phase of fiscal reform was launched under the name of the Fiscal Sustainability Program, which aims in the medium and long term to maintain sustainable fiscal indicators, through spending levels that are stable and directed to strategic spending that supports structural change in the economy to achieve the objectives of the Kingdom's Vision 2030, and within a framework that ensures the maintenance of sustainable levels of public debt and government reserves,” the minister said.

The government expects 2023 real GDP to grow 3.1% supported by increased non-oil activities, after an impressive 8% in 2022, which was the highest among G20 nations. Real GDP is expected to jump 6% in 2024, and 4.5% in 2025.

Domestic and foreign borrowing activities will also aim at repaying the debt principal due in fiscal 2023 and over the medium-term, as well as utilise the available opportunities based on market conditions to proactively implement additional financing activities.

  

High inflation remains a global concern and Saudi authorities are mindful of the challenges. Consumer Price Index in the kingdom is expected to rise 2.5% in 2022, still an acceptable level compared to global conditions, thanks to the proactive measures undertaken by the government to contain price hikes and ensure ample availability of food supplies. Inflation will remain around the 2.1% level over the next two years.

In addition, high growth rates have also led to a decline in Saudi unemployment during the second quarter of this year to 9.7%, from 11.0% at the end of FY 2021. This is the lowest unemployment rate in the past 10 years, the ministry noted.

 

SUSTAINED BUSINESS SENTIMENT

Growth expansion in Saudi Arabia’s non-oil sector continues apace. Underpinned by strong gains in both output and new orders, purchasing managers told S&P Global Ratings' monthly survey that business sentiment remains positive. The September Purchasing Managers Index (PMI) signalled an improvement in the health of the Saudi Arabian non-oil private sector economy for a 25th successive month.

“Two of the key components of the PMI, output and new orders, remained firmly inside positive territory during September, again expanding at strong rates. Panellists widely commented on the positive interaction between demand and production: new orders were reported to have risen on the back of firm market demand and the high quality of goods and services on offer. In turn, this helped to drive overall output upwards,” S&P noted.

Sales and production have now both risen for 25 successive months, with sector data indicating broadly consistent gains across the non-oil private sector economy. Indeed, robust economic activity has encouraged the further recruitment of new staff, although growth was only marginal and the weakest in the current six-month sequence.

“Placing some restriction on growth in staffing levels was firms' ongoing ability to keepon top of workloads: backlogs of work fell for a fourth month in a row, and again at a solid rate,” S&P said.