Saudi Economy Improves Further As Credit to Private Sector Rises

Saudi Arabian economy continued to improve as credit to the private sector registered a rise (+2.1% y-o-y; +0.4% m-o-m) in April, while bank claims to the public sector also grew (+25.5% yo-y; +2.7% m-o-m) in the same month, Al Rajhi Capital said in its Monthly Economic Report in June this year, quoting SAMA data for April.

In addition, deposit increased at the fastest annual pace in 21 months in April (+2.9% y-o-y; +1.3% m-o-m). POS transactions continued its rise in April (+24.4% y-o-y; +3.0% m-o-m), supported by ‘Restaurants and Hotels’, ‘Food and Beverage’ and ‘Transportation’ segments.

The cost of living index continued in the deflation territory for the fourth straight month (-1.9% y-o-y; flat m-o-m) in April. The ‘Housing, Water, Electricity, Gas’ and the ‘Furnishings and Household Equipment’ sectors (together constituting 34% of the index) weighed on the index.

With the low debt to GDP ratio (19% in 2018, the government has enough headroom to raise additional debt in order to support their fiscal spending. Meanwhile, it is reported that the government is mulling to extend its nonoil sector stimulus beyond 2021, Al Rajhi Capital said. The government has allocated SR200mn to support the private sector, which is expected to create more than 86,000 jobs by 2021.

Meanwhile, the IMF, in its 2019 Article IV Mission, indicated that the Kingdom’s economic reforms have started to pay off. The IMF expects nonoil sector to grow by 2.9% in 2019 (2.1% in 2018), owing to higher government spending coupled with structural reforms in the private sector. The IMF recently lauded Saudi Arabia’s successful implementation of VAT as well as energy price reforms. VAT has helped improve non-oil fiscal revenues, while energy price reforms have underpinned reduction in per capita gasoline and electricity consumption.

Moreover, credit to the private sector increased 2.1% y-o-y (+0.4% m-o-m) in April, while bank claims on public sector rose by 25.5% y-o-y (+2.7% m-o-m) in the same month. Meanwhile, deposits grew 2.9% y-o-y (+1.3% m-o-m) in April.

SAMA foreign reserves on a yearly basis dropped by 0.3% in April 2019 compared to a rise of 1.2% y-o-y in March. On a monthly basis, reserves rose by 1.1% in April (+3.1% m-o-m in March). Meanwhile, government reserves with SAMA stood at SR 599.2bn (including government current account) as of April, registering a monthly rise of 2.7%.

Kingdom raised SR2.84bn via its SR-denominated Sukuk program. The government sold SR655mn of bonds which matures in 2028 and SR2.185bn of bonds which matures in 2031.

Moody’s has maintained the Saudi Arabia’s A1 rating (Outlook: Stable). The rating agency lauded the country’s structural reforms and expects the Kingdom to grow by 2.5% in both 2019 and 2020. Banking sector profits increased 8.1% y-o-y to stand at SR4,695mn in April (+20.1% y-o-y in March). However, on a monthly basis the profits slipped 7.0% in April (+28.4% m-o-m in March). The cumulative banking sector profits for the year (till April 2019) stood at SR18,571mn, recording a rise of 12.4% y-o y.

Money Supply (M3) rose in April to SR1,835bn, led by the rise in M2. Point-of-sale (POS) transactions rose by 24.4% y-o-y in April (+19.9% y-o-y in March), supported by the ‘Restaurants and Hotels’ (+44.8% y-o-y), ‘Food and Beverage’ (+31.8% y-oy) and ‘Transportation’ (+17.1% y-o-y) segments. However, ATM withdrawals dropped by 1.1% y-o-y in April (-2.1% y-o-y in March.

Remittances (personal transfers) by Saudi nationals rose for the first time in seven months by 2.4% y-o-y in April, as against the drop of 31.9% y-o-y in March, whereas remittances by non-Saudi nationals dropped 8.5% y-o-y in the same month (-12.0% y-o-y in March).

Cost of living index continued in the deflation territory for the fourth straight month in April. The index dropped by 1.9% y-o-y in April, versus the fall of 2.1% y-o-y last month. The fall in ‘Housing, Water, Electricity & Gas’ (-7.8% y-o-y) and ‘Furnishings and Household Equipment’ (-0.3% y-o-y) sectors, which together constitute 34% of the index, weighed on the index. On a monthly basis, the index remained broadly unchanged in April.

Crude oil prices (Brent July futures contract) fell 2.3% MTD in May 2019, owing to rising trade tensions between the US and China. Further, the rise in US crude oil production also weighed on the oil prices. Meanwhile, the Saudi Arabian crude oil output slipped 0.3% m-om, to 9.8mbpd in April 2019, compared to the monthly fall of 2.8% in March. The US Energy Information Administration (EIA) in its May 2019 report estimated Brent crude oil prices to average $70/barrel for 2019 and $67/barrel for 2020.