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.


Etihad to loan pilots to competing UAE airline Emirates

Updated 24 June 2018
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Etihad to loan pilots to competing UAE airline Emirates

  • Etihad Airways has told its pilots they can join rival Emirates on a temporary basis for two years
  • The agreement is also likely to help Emirates, where a pilot shortage forced it to cancel some flights this summer

DUBAI: Etihad Airways has told its pilots they can join rival Emirates on a temporary basis for two years, according to an internal Etihad email seen by Reuters, as the downsizing of the Abu Dhabi carrier’s operations helps fill a pilot shortage for Dubai’s Emirates.
Etihad, which last week reported a $1.5 billion annual loss, has been overhauling its business since 2016, replacing its top executive, dropping unprofitable routes and shrinking its fleet.
The agreement is also likely to help Emirates, where a pilot shortage forced it to cancel some flights this summer. Management had said the shortage was a short-term issue.
In the email, Etihad said pilots who join Emirates on a two-year secondment would be placed on a leave of absence, retain seniority at Etihad, and receive their salary and full benefits from the Dubai airline.
Pilots were asked in the email to register a non-binding expression of interest and told that Emirates’ recruitment team would meet with pilots at Etihad’s offices.
Two sources separately told Reuters that Etihad had emailed staff announcing the agreement with Emirates.
An Etihad spokesman told Reuters secondment programs were common practice among airlines, enabling the effective management of pilot resources.
“This is something Etihad Airways has done for several years with partner airlines around the world,” the spokesman said.
An Emirates spokeswoman told Reuters the airline was “working with Etihad on a secondment program for some of their pilots.”
It was not immediately clear how many pilots would be offered temporary employment at Emirates and the email stated that any pilots applying for the secondment would need to complete Emirates’ training program.
Etihad employs 2,200 pilots, according to the airline spokesman. Reuters reported in January that Etihad had offered up to 18 months unpaid leave to pilots.
Emirates and Etihad have been exploring closer ties and signed a security pact in January, the first agreement between the United Arab Emirates (UAE) based airlines. Emirates has since said that a closer relationship was not about a merger.
Emirates and Etihad, backed by their state owners, have competed developing global networks from their respective hubs in Dubai and Abu Dhabi that are just 128 kilometers apart.
Emirates is owned by the government of Dubai, and Etihad is owned by the government of Abu Dhabi.