December2017

We are pleased to present our analysis of KSA Budget 2018, which provides a clear indication of an expansionary fiscal policy to support economic growth in the near term

The key highlights are:

• Expenditure to be accelerated: – Government spending in 2018 is estimated to increase 20% year-on-year (YoY) to SAR 1,111 bn, the highest ever for Saudi Arabia. However, budget expenditure to be limited to SAR 926 bn (+5.6 YoY), with rest being taken up by National Development Funds (SAR 83 bn) and Public Investment Fund (SAR 50 bn). This indicates a shift in government policy, from tightly controlling expenses in 9M2017 period, it has increased spending in Q4 2017 and would continue the same in 2018.

• Revenue growth led by non-oil revenues: – Government estimates revenues to rise 12.5% YoY to SAR 783 bn in 2018, led by 11.8% rise in oil revenue and 13.7% increase in non-oil revenue, led by new taxes and higher tariffs.

• Fiscal deficit reduction to continue: – The fiscal deficit for 2018 is aimed at SAR 195 bn or 7.3% of GDP, indicating a 15.2% fall as compared to 2017 actual deficit of SAR 230 bn.

• GDP growth expected to return:– The economy is expected to grow by 2.7% in 2018, as compared to -0.5% in 2017.

• Fiscal rebalancing time period is extended: – The breakeven year for fiscal rebalancing is now postponed to 2023, as compared to 2020.

We believe the 2018 Budget indicates the government has prioritized revival in the economy through targeted higher spending. The easing of fiscal rebalancing timeline to 2023 also gives the government more time and flexibility to respond to local macroeconomic trends and global oil market dynamics. Notwithstanding the risks of a slowing economy, volatility in oil markets and geopolitical tensions, the Saudi government appears to be on the right track to revive economic growth and move forward on the long term path of 2030 goals.

For any feedback or suggestions, kindly reach out to investmentresearch@mefic.com.sa

 MEFIC Capital_KSA 2018 Budget Overview