Investor confidence in Kingdom to increase

26/12/2014 06:24 AST

Saudi and foreign financial analysts on Thursday emphasized that the 2015 expansionary budget would generate confidence among investors in the Kingdom and accelerate the country’s growth.
Fahad Alturki, chief economist and head of research at Jadwa Investment, said the new budget with spending maintained at a very high level would play a vital role in supporting the economy.
“For the first time since 2011, a fiscal deficit is projected, based on revenues of SR715 billion and expenditures of SR860 billion,” said Alturki. Education and health care remain the focus of government spending, accounting for 43.8 percent of total spending, he said.
“The deficit will be financed comfortably using Saudi Arabian Monetary Agency’s huge stock of net foreign assets, which totaled $736 billion at the end of November,” he said.

Despite the global environment of lower oil prices, the Kingdom maintains its counter-cyclical economic policy in the 2015 fiscal budget.
“It continues to highlight the government’s intention to stimulate the economy. We estimate that the allocation to investment spending remains elevated at SR278 billion which will support healthy economic growth and provide encouragement and opportunities for the private sector at a time of global and regional uncertainty,” Alturki told Arab News.

He said total revenues slipped by over 9 percent in 2014 compared to the previous year, yet remained above the SR1 trillion mark for the fourth year in a row. The growth in the fiscal expenditures, at 12.7 percent, was the highest in the last three years, exceeding the SR1 trillion mark for the first time.

“Preliminary economic data shows that 2014 was a healthy year for the economy with real GDP growth of 3.59 percent,” Alturki said. Elevated oil export revenues maintained a double-digit current account surplus at 14.1 percent of GDP or $106.4 billion.

“We estimate a price of $56 per barrel for Saudi export crude (around $60 per barrel for Brent) and production of 9.6 million barrels per day are consistent with the revenue projections contained in the budget. We expect both revenues and expenditures in 2015 to be above the budgeted level and forecast a budget deficit of SR157.4 billion (6 percent of GDP) based on oil price of $79 per barrel for Brent,” the Jadwa official said.

John Sfakianakis of Ashmore Group said the budget would enhance investor confidence. “It sends a very strong message that the government will do all it can to keep the economy on all cylinders and will continue to meet all its commitments on all mega projects,” he said.

Sfakianakis expected the budget deficit for 2015 could be easily covered. “Reserves are deployed at times like these when deficit financing is necessary so the economy doesn’t contract and confidence doesn’t wane,” he said.

Sfakianakis said the budget announcement would boost the market. “Saudi Arabia has the ability, firepower and willingness to apply counter cyclical fiscal policies in times such as these,” he added.

Saud M. Al-Suwaileh, who works with the ministry of finance as an economic specialist and a former manager of US-Saudi Business Council’s Riyadh office, described the budget as “very positive” saying it has taken full care of public welfare. “It will also contribute to the sustainability of strong public finance.”

Shoura Council member Thuraya Al-Rayed said: “It’s a good sign that the current projects would continue under the new budget.” She is happy that services such as health and education are being given priority like in the past despite the falling oil prices.

Akhtar ul-Islam Nadwi, an Indian businessman in Riyadh applauded the budget saying it has taken care of welfare of the public, allocating required amounts for various projects without cutting on spending despite the falling oil prices. “It is completely guided by Islamic principles of public welfare,” he added.

Arab New