World Economy

S. Arabia’s Economic Slump Deepens

Saudi Interbank Offered Rate has nearly tripled to about 2.3% from less than 0.8% over the past year and is facing a liquidity squeeze in the market
The non-oil sector shrank by 0.7%, its weakest reading in at least five years. Moreover, output in the construction sector shrank by 1.9% year-over-year in July.The non-oil sector shrank by 0.7%, its weakest reading in at least five years. Moreover, output in the construction sector shrank by 1.9% year-over-year in July.

A bunch of warning signs have bubbled up in Saudi Arabia’s economy over the past few months.

The Saudi economy grew by just 1.5% in the first quarter compared with the year before—its slowest rate since 2013, Business Insider reported.

And while the oil sector grew by 5.1% year-over-year, the non-oil sector shrank by 0.7%—its weakest reading in at least five years. Moreover, output in the construction sector shrank by 1.9% year-over-year in July.

And a note from Al Rajhi Capital recently pointed out that the Saudi Arabia Interbank Offered Rate, or Saibor, has nearly tripled—to about 2.3% from less than 0.8%—over the past year and is facing a “liquidity squeeze in the market”.

  Foreign Assets Drop Further

But over the past few days, a couple of other signs have emerged that economists are keeping an eye on.

Official data reported last Sunday showed that net foreign assets at the Saudi central bank dropped to $555 billion in July, down $6 billion from the previous month, according to Reuters. This was a 16% drop compared with the year before and the lowest level since February 2012.

And that’s notable because the Saudis have been dipping into reserves in light of the budget deficit and lower oil prices.

Furthermore, Capital Economics’ GDP Tracker, which is constructed from monthly activity data, estimates that the Saudi economy shrank by 2.3% year-over-year in June. It also estimates that output slumped by 2% year-on-year in the second quarter.

The firm’s tracker suggests that the non-oil sector saw output fall by about 4.5% year-over-year in June—which would be the sharpest drop since 1986. It could be worth watching the Saudis’ non-oil industry as the government moves forward with its plan to diversify away from the oil sector.

  Shares Shrink Yet Again

The recent relapse in traded monetary liquidity averages in the Saudi shares market caused concern for some shareholders in enlisted companies, Asharq Al-Awsat reported.

On the level of monetary liquidity flow to Saudi shares market trading, averages declined through the past weeks, reaching $3.3 billion compared with$3.5 billion the week before, meaning a drop of 6%.

The Saudi share market index had also dropped during August, closing at 6, 080 points on Wednesday and losing 3.5% or 222 points compared with results obtained in July.

“Financial results of companies are expected to undergo a slight increase during the third quarter of 2016 compared with the second quarter,” financial analyst Faisal al-Ukab told Asharq Al-Awsat.

In this context, statistics of the Saudi Arabian Monetary Agency revealed a slight increase in cash flow exposure during 2015 compared with 2014.

Statistics also showed that the total investment funds assets in Saudi Arabia dropped to $27.6 billion in 2015 compared with $29.3 billion in 2014. The number of investment funds in the kingdom increased to 280 funds in 2015 compared with 252 funds in 2014, according to SAMA statistics.

  Electricity Bills Jump 100%

Despite the media campaign praising Vision 2030, many Saudi citizens are worried by the state imposing new tariffs and increasing old ones. There is also a financial crisis that has hit several companies operating in Saudi Arabia, caused by the general budgetary deficit and the decline in governmental spending on development projects, Al Monitor reported.

The problem surfaced when the citizens received their July electricity bills for double their usual amounts. One citizen, Khalid Mulla, tweeted on Aug. 7 that his electricity bill had risen to 750 Saudi riyals (about $200) from 300 riyals previously.

Although there have been conflicting views expressed on Twitter, it seems that all people agree the government is to blame for the increase in electricity bills. Saudi economic journalist Barjas al-Barjas tweeted on July 19 that the citizens will pay the price of the finance ministry’s failure.

Meanwhile, Omar al-Zuhairi, another Saudi citizen, tweeted on Aug. 4 his call for the government to reduce its electricity waste on lighting streets and highways. Another Saudi blogger Zeinab Haji was bolder, tweeting July 30, “The electricity company decided to rob its citizens to settle the debt of prominent figures.”