Saudi Arabia's oil revenue is expected to reach SR605 billion ($161.36 billion) against budgeted SR492 billion this year as the kingdom witnesses a continuous improvement in the economy, an Al-Rajhi Capital research report said.
With budgeted non-oil revenue of SR291 billion, the fiscal deficit is expected to be SR82 billion for 2018 (~58% lower than government budget deficit estimate of SR194.7 billion), it said.
"We continue to believe that steady oil prices and higher oil output coupled with better non-oil growth will aid the kingdom’s economic recovery this year," the report said.
Quoting from Saudi Monetary Agency's (Sama) data, it said credit to the private sector climbed for the fourth consecutive month (+0.7% y-o-y; +0.2% m-o-m) in July, while bank claims to the public sector also witnessed a rise (+24.2% y-o-y; +0.9% m-o-m).
Further, consumer spending continued to improve with POS transactions (+25.3% y-o-y; -0.6% m-o-m in July) and ATM withdrawals (+12.7% y-o-y; +2.4% m-o-m) witnessing a steady rise on annual basis.
Meanwhile, the Sama foreign reserves have recorded the highest annual growth in over three-and-half years (+1.4% y-o-y; -1.0% m-o-m) in July, as higher oil revenue and recent debt issuances have curbed the government’s need to tap its reserves to plug the fiscal deficit.
Remittances from Saudi nationals has registered a drop (-32.5% y-o-y) in July; whereas those from non-Saudi nationals has increased (+7.9% y-o-y).
Meanwhile, cost of living index grew at a faster pace (+2.2% y-o-y; +0.1% m-o-m) in July, on the back of rise in ‘Food & Beverages’ sector which accounts for nearly one-fifth of the index.
Index of Industrial Production (IIP) climbed 0.6% q-o-q in Q1 2018, supported by the rise in ‘Manufacturing Industry’ sector (constituting ~23% of the total index). However, the remaining sectors ‘Mining and Quarrying’ and ‘Electricity Supply’ witnessed a drop.
Saudi Arabia’s H1 2018 fiscal deficit narrowed to SR41.7 billion compared to SR72.7bn in H1 2017. For 1H 2018, revenue jumped ~43% y-o-y to SR439.9 billion, supported by a sharp increase in both oil (+40% y-o-y) and non-oil revenues (+49% y-o-y).
Meanwhile, expenditure grew by 26.5% y-o-y to SR481.5 billion.
Saudi PIF has raised $11 billion loans from banks, its first commercial loan, in order to finance country’s economic transformation plans. The PIF will pay a margin of 75bps over the LIBOR for the loan. This loan is likely to provide a boost to government spending, thereby helping the kingdom to transform the economy in future, said the report.
IMF has urged the kingdom to contain its spending and wage bill amid rising oil prices, as higher spending would negatively impact the Saudi budget in case of an unexpected drop in oil prices. Last month, the IMF raised Saudi Arabia’s growth forecast for this year.
Kingdom’s housing ministry has implemented 48 residential projects across Saudi Arabia via public-private partnerships (PPP), which built 71,700 residential units. Around 68% of the units were built in Jeddah, Riyadh and Dammam.
Meanwhile, government reserves with Sama stood at SR597.8 billion (including government current account) as of July 2018, recording a monthly fall of 2.0%.
Credit to the private sector rose 0.7% y-o-y (+0.2% m-o-m) in July, while, bank claims on public sector increased 24.2% y-o-y (+0.9% m-o-m) in the same month. Meanwhile, deposits slipped 1.5% y-o-y (-0.6% m-o-m) in July.
Banking sector profits rose 19.3% y-o-y to stand at SR4.758 billion in July (-3.5% y-o-y in June). The cumulative banking sector profits for the year (till July 2018) stood at SR28.818 billion, registering a rise of 9.9% y-o-y. However, the non-performing loans have witnessed a steady rise in recent quarters, it said.
Money Supply (M3) dropped 0.8% y-o-y (-0.9% m-o-m) in July to SR1,787 billion, recording the same yearly rise as the previous month, weighed down by the drop in M2 (-1.6% y-o-y). Meanwhile, as per the weekly money supply data, published by SAMA, M3 may witness an improvement in August (Figure 14).
Point-of-sale (POS) transactions jumped 25.3% y-o-y in July (+6.8% y-o-y in June), driven by ‘Restaurants and Hotels’ (+48.9% y-o-y), ‘Food and Beverage’ (+28.6% y-o-y) and ‘Clothing and Footwear’ (+15.1% y-o-y) segments. Meanwhile, ATM transactions rose, after a brief drop last month, by 12.7% y-o-y in July.
Crude oil prices (Brent October futures contract) gained 4.4% m-o-m in August 2018, backed by the fall in US crude oil inventories. Further, reports suggesting a drop in Iranian output also aided oil prices. Meanwhile, crude oil production increased 2.2% m-o-m, to 10.7 mbpd in July 2018, compared to the rise of 4.5% m-o-m in June.
Kingdom’s non-oil exports rose for the 9th month in a row, up by 26.7% y-o-y in June 2018 (+14.3% y-o-y in May 2018), whereas the non-oil imports dropped 3.2% y-o-y in June (-6.4% y-o-y in May 2018).
Cost of living index (base year 2013) grew at a faster pace of 2.2% y-o-y in July (+2.1% y-o-y in June), driven by the ‘Food & Beverages’ sector which accounts ~19% of the total index. On a monthly basis, the index rose (+0.1% in July) for the second consecutive month.