2015 Budget: Countercyclicality and firepower

Updated 25 December 2014
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2015 Budget: Countercyclicality and firepower

The main message of one of the most important documents of the year, the budget, is that Saudi Arabia will continue to boost the economy.
All cylinders have been on fire for some years now.
The question in everyone’s mind is what will the fiscal policy look like after oil prices have plunged by more than 30 percent over the recent months?
The answer is simple: it will keep on spending on the areas that are strategic and essential for sustainable growth, education, health care, infrastructure and mega projects, as well as security and defense.
This brings total capital spending between 2010 and 2014 to SR1.42 trillion, in line with the SR1.44 trillion in the 9th Five-Year Development Plan (a 67 percent increase compared to the 2005-09 Development Plan).
Current expenditures, which have risen over the last years, will receive less of a boost in 2015 given that its size has grown to levels equal to the size of the country’s actual 2004 budget.
The expected deficit for 2015 is very manageable, at 5 percent of GDP, which is 5 percent of the country’s foreign reserves, and even if overspending is carried out, there will be plenty of firepower to support such a policy.
There are enough assets accumulated for Saudi Arabia to run a 5 percent deficit for the next 20 years.
Historically, Saudi Arabia has been managing comfortably deficits in the single digits with some exceptions such as the mid-1980s and the early 1990s.
Revenues are always conservatively calculated and it could be that in 2015 oil income which represented 89 percent of total government income would be higher.
Although oil prices have been exhibiting a lot of volatility, there is plenty of positive news in 2015 that would push oil prices higher.
Oil prices have been exaggerated on the downside and will begin to recover in 2015 and beyond, as Emerging Market economies make a strong comeback, the US and China continue to show solid growth prospects and Europe and Japan recover.
Saudi Arabia’s total reserves are close to the size of its total economy which allow for plenty of firepower deployment in more revenue challenging days.
The nonoil economy in 2014 grew at a spectacular 8.2 percent which is among the highest in emerging markets.
This translates into more jobs for Saudis and great expansion and deepening of the private real economy with low inflation.
For 2015, the economy is expected to grow 3 percent with inflation at 2.6 percent and nonoil growth at 6.7 percent.
Local equities should see a year of growth given the 2015 budget given that consumption and demand will prevail solidly.
At current valuations, there are plenty of companies that look attractive.
The opening up of the market should provide impetus for growth in the first half of 2015.
The 2015 budget is setting the economy on a solid footing that allows it to grow notwithstanding the temporary oil revenue challenges.

John Sfakianakis is GCC director at Ashmore Group.


American Airlines ‘unaware’ of some Boeing 737 MAX functions until last week

Updated 15 November 2018
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American Airlines ‘unaware’ of some Boeing 737 MAX functions until last week

  • The FAA and Boeing are evaluating the need for software or design changes to 737 MAX jets
  • ‘Safety remains our top priority and is a core value for everyone at Boeing’

WASHINGTON: American Airlines Group Inc. said on Wednesday it was “unaware” of some functions of an anti-stall system on Boeing Co’s 737 MAX until last week.
Boeing and the US Federal Aviation Administration (FAA) issued guidance on the system last week after a Lion Air jet crashed in Indonesia on Oct. 29, killing all 189 people on board.
The FAA warned airlines last week that erroneous inputs from the system’s sensors could lead the jet to automatically pitch its nose down even when autopilot is turned off, making it difficult for pilots to control.
The system was designed to prevent the jet from stalling, according to information provided by Boeing to airlines.
“We value our partnership with Boeing, but were unaware of some of the functionality of the Maneuvering Characteristics Augmentation System (MCAS) installed on the MAX 8,” an American Airlines spokesman said.
“We must ensure that our pilots are fully trained on procedures and understand key systems on the aircraft they fly.”
Indonesian investigators said on Monday the situation the crew of a doomed Lion Air jet was believed to have faced was not contained in the aircraft’s flight manual. US pilot unions were also not aware of potential risks, pilot unions said.
The FAA and Boeing are evaluating the need for software or design changes to 737 MAX jets in the wake of the Lion Air crash, the regulator said on Tuesday.
The American Airlines spokesman said his airline was continuing to work with Boeing and the FAA and would keep pilots informed of any updates.
A Boeing spokeswoman said the manufacturer could not discuss specifics of an ongoing investigation but it had provided two updates for operators around the world that re-emphasize existing procedures to deal with situations relating to MCAS.
“We are confident in the safety of the 737 MAX,” she said. “Safety remains our top priority and is a core value for everyone at Boeing.”