Saudi economy is resilient, says World Bank expert

Updated 07 February 2016
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Saudi economy is resilient, says World Bank expert

WASHINGTON: Saudi Arabia has five years’ worth of reserves at current spending levels and oil prices, Shantayanan Devarajan, chief economist of the World Bank’s Middle East and North Africa Region said in an interview with Tass.
“The fact is that Saudi Arabia did not cut back its oil exports when the price of oil plummeted in late 2014 (and stayed low in 2015). From an economic point of view, this strategy is sustainable only if Saudi Arabia can manage its fiscal policy so it doesn’t run out of foreign exchange reserves. At current spending levels, the estimates are that it has five years’ worth of reserves,” the expert said.
“The Saudi economy is as resilient as it is able to make the fiscal adjustments to respond to low oil prices. They have already announced the reduction of fuel subsidies,” Devarajan added.
Oil prices accelerated the decline early in January against the decision of the Saudi Aramco to increase discounts on its major blends for European consumers.
Brent price dropped by nearly 30 percent below $28 per barrel in the first three weeks of January but recovered lately to $35 a barrel.
A recent report from Jadwa Investment said that the Kingdom has maintained a high level of spending in the 2016 fiscal budget despite the global environment of lower oil prices.
Education and health care remain the focus of government spending, accounting for 35 percent of total spending.


Saudi stocks receive landmark emerging markets upgrade from MSCI

Updated 16 min 36 sec ago
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Saudi stocks receive landmark emerging markets upgrade from MSCI

  • Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months
  • MSCI’s Emerging Market index is tracked by about $2 trillion in active and global funds

LONDON: Saudi Arabian equites are poised to attract up to $40 billion worth of foreign inflows, following a landmark decision by index provider MSCI to include the Kingdom’s stocks in its widely tracked Emerging Markets index.

"MSCI will include the MSCI Saudi Arabia Index in the MSCI Emerging Markets Index, representing on a pro forma basis a weight of approximately 2.6% of the index with 32 securities, following a two-step inclusion process," the MSCI said in a statement late on Wednesday night Riyadh time.

“Saudi Arabia’s inclusion in MSCI’s EM Index is a milestone achievement and will likely bring with it significant levels of foreign investment,” Salah Shamma, head of investment for MENA at Franklin Templeton Emerging Markets Equity, told Arab News. 

“It is a recognition of the progress Saudi Arabia has made in implementing its ambitious capital markets transformation agenda. The halo effect of such a move will be felt across the stock exchanges of the entire Gulf Cooperation Council (GCC).”

Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months to bring local capital markets more in line with international norms, including lower restrictions on international investors, and the introduction of short-selling and T+2 settlement cycles.

Such reforms prompted index provider FTSE Russell to upgrade the Kingdom to emerging market status in March, opening the country’s stocks up to billions worth of passive and active inflows from foreign investors.

MSCI’s Emerging Market index is tracked by about $2 trillion in active and global funds. The inclusion of Saudi stocks in the index, alongside FTSE Russell’s upgrade, is forecast to attract as much as $45 billion of foreign inflows from passive and active investors, according to estimates from Egyptian investment bank EFG Hermes. 

The upgrade announcement was widely expected by the region’s investment community, following a similar emerging markets upgrade announcement by fellow index provider FTSE Russell in March. 

“MSCI index inclusion will be a historic milestone for the Saudi market as it will allow for sticky institutional money to make an entry in 2019 which will help deepen the market,” said John Sfakianakis, director of economic research at the Gulf Research Center in Riyadh.