Analysts: Saudi budget indicates shift from austerity to growth

Saudi Arabia on Tuesday unveiled a record budget for 2018 despite lower oil prices, indicating the Kingdom’s optimism for its diversification and economic plans. The world’s largest crude exporter has set 2018 revenue at SAR 783 billion and public spending at SAR 978 billion, with a projected deficit of SAR 195 billion.

The Kingdom also pushed back its fiscal balance target from 2020 to 2023, pointing to further easing of austerity measures. Economists say the “expansionary budget” will support growth across the country’s key non-oil sectors.

Argaam has compiled a list of analyst comments on Saudi Arabia’s fiscal policy, as follows:

Jason Tuvey, economist (Middle East) at Capital Economics

The Saudi budget released this afternoon showed that the government has already started to loosen fiscal policy and will continue to do so in 2018. This is a more accommodative stance than we had expected and so we have revised up our gross domestic product growth forecasts for 2018, from 0.8 percent to 1.5 percent.

That said, the budget is likely to disappoint those who were hoping for substantial policy loosening to support the economy.

Santhosh Balakrishnan, senior research analyst at Riyad Capital

(It is) an expansionary budget. A reasonable part of it is expected to propel growth in the cement and building materials sectors, assuming a 3.7 percent non-oil GDP growth. Cement stocks have rallied in anticipation of the same.

Fahad M. Alturki, chief economist at Jadwa Investment

The government continues to support the economy through budgeting for SAR 978 billion in spending compared with 2017’s budget of SAR 890 billion. Based on revenues of SAR 783 billion, the government is budgeting for a slightly lower deficit at SAR 195 billion.

We believe the government is budgeting for continued compliance with OPEC cuts, which were extended to the end of 2018 in a meeting held by the organization back in November.

Tamer El Zayat & Majed A. Al-Ghalib, senior economists at National Commercial Bank

Fiscal consolidation and structural adjustment weighed on the Saudi economy, which contracted in real terms by 0.5 percent in 2017, yet is expected to grow by around 2 percent in 2018. The main driver will be the non-oil sector that is expected to expand by a significant 3.6 percent on the back of the announced budgetary pro-growth measures. In contrast, the oil sector will not be supportive especially that the Kingdom continues to bear the brunt of OPEC’s agreed upon cut.

We do believe that extending the timeline for adjusting energy subsides towards 2025 and announcing myriad investment schemes came at a critical junction to avoid negative spillovers on the economy.

Economists at Al Rajhi Capital

Budget 2018 represents a shift to fiscal stimulus, delaying the fiscal balance to 2023. This will drive private sector activity and non-oil GDP growth going forward.

Even as spending is on the rise, fiscal consolidation is still in focus. (We) expect GDP to rebound to 2.7 percent in 2018. Inflation, after 2018 VAT impact, will normalize in 2019.

We feel that the risks to the revenue projections are low, given a reasonable oil price assumption for 2018 and start of major non-oil revenue streams. Hence, the chance for material fiscal slippage versus projections is low for 2018, in our view.

U-Capital, Oman-based brokerage

Overall we believe, an exemplary budget has been laid out by Saudi Arabia. The government is keen on stimulating the economy by [focusing] on priority sectors such as health, education, infrastructure and security. We believe focus on infrastructure, health, education would boost the topline of cement, real estate, healthcare and retail segment in the coming period.