Saudi Arabia’s current account deficit to turn surplus by 2019

Saudi Arabia’s current account deficits will return to surplus by 2019, driven by a recovery in oil prices, BMI Research said in a recent report.

“We forecast a current account deficit of 1 percent of gross domestic product (GDP) in 2017 and 0.3 percent in 2018, down from 4.3 percent in 2016, and to go back to surplus by 2019,” the agency said.

Prices for Brent crude, the benchmark used by most Middle Eastern oil exporters, are expected to remain lower than historical levels, BMI Research said.

The agency has forecast oil to average $54 per barrel (bbl) in 2017 and $55/bbl in 2018.

However, lower-for-longer prices will prevent current account from returning to surplus before 2019, BMI Research said, adding that the era of double-digit surpluses is over.

The Saudi Arabian government’s programs to diversify its economy away from oil will have a positive impact on non-oil exports.

“But given the lack of development of Saudi Arabia's manufacturing sector, we believe that this will take time, and that hydrocarbon exports will continue to lead the show over the foreseeable future,” the report said.

The country is expected to remain reliant on imports for consumer and capital goods.

Meanwhile, Kingdom’s risks to external financing are nearly “non-existent,” and its efforts to attract greater foreign investment will also support its financing capabilities.

“Meanwhile, we believe that Saudi Arabia will remain a net creditor to the rest of the world,” BMI Research said, adding that the government will continue to avoid selling off foreign assets.

“Instead, it will seek to shift towards a more aggressive investment strategy, given its ambition to increase the Public Investment Fund's (PIF) assets from $600 billion in 2015 to $7 trillion by 2030,” it added.