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Saudi Arabia is suffering from sluggish economic growth.
Saudi Arabia is suffering from sluggish economic growth.

Saudi Deficit Set to Remain Large, Reforms Could Falter

Saudi Deficit Set to Remain Large, Reforms Could Falter

Saudi Arabia’s short-term economic prospects are near “catastrophic”, with a danger that planned reforms could falter, according to new research.
A research note issued by Indosuez Wealth Management, the global wealth management division of Credit Agricole, said nominal economic growth in the Persian Gulf kingdom was “barely positive” over 2017, Arabian Business reported.
By contrast, it said the UAE, which has also been penalized by lower energy prices, is benefiting from a more diversified economy. “Rebounding global trade will help Dubai, as will tourism. However, as long as the UAE maintains its currency peg to the US dollar, the UAE has to follow the Fed’s upward move in interest rates which will put a cap on growth.”
The research note said the Saudi government deficit is set to remain large as while the recent higher oil price helps to increase the revenue side, there is additional spending in the 2018 budget.
Indosuez said this does not bode well for the gross public debt, which could approach 60% of nominal GDP by 2022, compared to just 1.6% in 2014.
The research added that the introduction of VAT at the start of 2018 should help improve the picture. “In a nutshell, the Saudi short-term perspectives do not look brilliant. This is where the danger lies as it could allow the dynamics of reform to falter, forcing the country to suffer for longer from the Dutch disease linked to an overwhelming dependence on oil,” Indosuez noted.
The growth slowdown has been mirrored by a decline in imports. As a result, the level of reserves has diminished from a high of SR2,797 billion ($746 billion) in August 2014 to SR1,850 billion in October 2017.
The report also noted that Saudi Arabia’s high population growth rate of around 1.2% per annum looks promising for the economy.
“That fact, coupled with the (so-called) ambitious Vision 2030 project, hold out urgently needed hope at a time when the country is suffering sluggish economic growth and large fiscal imbalances as a result of the low oil price since 2014,” it said.
Meanwhile, in the wider Middle East Arab region (UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait), another survey showed that business confidence is not absolutely stable. Hanadi Khalife, director, MEA & India Operations of IMA said: “There is a challenging and mixed outlook for the region, caused by the drop in oil revenues, fiscal austerity, higher inflation rates and continued political uncertainty.

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