Saudi govt shifts focus to growth, as oil steadies above $60: BofAML

Bank of America Merrill Lynch (BofAML) considered that the Saudi government is focusing on growth as fiscal adjustment looks sufficient to safeguard stability, following the robust recovery in oil prices.

The bank said in a new report that the oil price threshold, at which the planned macroeconomic adjustment brings fiscal imbalances towards low mid-single digits, has been revised to $60 per barrel from $50 per barrel.

The revision is driven by higher expenditure path, slower pace for domestic energy pricing reform, and permanent impact of the January 2018 Royal Order, the bank added.

However, BofAML noted that the success of the Kingdom's energy policy and the ability to increase production, alongside still-high oil prices remains critical.

While the report said it expects "growth to have bottomed out at the expense of looser fiscal policy", it said the dollar peg is likely to hold due to still-high savings and oil prices.

According to BofAML, the government plans to support economic activity through a more gradual pace of fiscal reforms; introduction of household/cost of living allowances and private sector support programs; introduction of structural reforms and the launch of mega-projects, which provides the most upside potential to its average growth projections of 2.2-2.5 percent.

Meanwhile, the bank warned that a prolonged period of low oil prices, fiscal reform slippage, devaluation, political succession and regional geopolitical threats remain the primary risks for the Kingdom.