Saudi Arabia unveils largest budget in Kingdom’s history

King Salman announced the budget on Tuesday. (SPA)
Updated 20 December 2017

Saudi Arabia unveils largest budget in Kingdom’s history

RIYADH/DUBAI: Saudi Arabia will spend more in 2018 than at any time in its history, King Salman announced in Riyadh during the annual budget statement. 
Government expenditure will next year amount to a projected SR978 billion ($260.8 billion), up from SR890 billion this year. Additional spending by development funds is set to bring total public expenditure to more than SR1.1 trillion in 2018.
The National Development Fund will fund housing, industrial and mining projects in addition to packages stimulating the private sector, according to the Saudi Press Agency (SPA). The Public Investment Fund (PIF) will also fund new and existing projects next year.
Despite this higher level of spending, the budget deficit is set to fall further, to a projected SR195 billion. In 2017, the deficit is estimated at SR230 billion, below 10 percent of gross domestic product (GDP) for the first time since 2015, when the oil price collapse of the previous year hit the Kingdom’s finances and economy.
That level of deficit — at 8.9 percent of GDP in 2017— compares with around 15 percent in 2015 and 12.8 percent last year. Next year is expected to be the fifth year of budget deficits since the oil price collapse of mid-2014. But the gap in the Kingdom’s fiscal balance has not held back overall expenditure. 
With revenue rising from SR692 billion this year to SR783 billion in 2018, the deficit is expected to fall to below 8 percent of GDP, the budget statement said. The statement confirmed that Saudi Arabia is expected to balance the books by 2023. 
Rising oil prices in the second half of this year outweighed the impact of a contracting economy, which was estimated at minus 0.5 percent, but which is projected to jump to 2.7 percent in 2018.
King Salman said the big government expenditure was intended to continue the efforts to meet the Kingdom’s Vision 2030 reforms, which aim to increase the size of the national economy and sustain its growth.
He said that many programs had been launched within the framework of the Vision 2030 strategy.
“Dozens of programs have been launched to realize the goals of diversifying the economic base and empower the private sector to play a major role, in sustaining expenditure efficiency, in order to realize appropriate economic growth rates, mitigate the burden on the citizens and tackle possible impacts, in addition to supporting the private sector,” the king was quoted as saying by the SPA.
The budget also includes allocations for housing, government spending to spur growth, and measures to provide more employment opportunities for male and female citizens, the king added.
Crown Prince Mohammed bin Salman said: “Improving the living standard of citizens and diversifying the economy are our goal. 
“We aim to reduce the budget deficit next year to be less than 8 percent of GDP despite the large and expansionary budget. 
“We will achieve financial stability by stimulating the private sector to generate more jobs.”
He said that the measures already undertaken under Vision 2030 had produced “tangible results.”
Nasser Saidi, the former chief economist of the Dubai International Financial Centre (DIFC) and Lebanese economy minister, told Arab News that next year would be key for the Saudi economy. 
“(It) will be a litmus test for private sector engagement in Saudi Arabia’s economy,” he said. 
“Much hinges on providing the stimulus and incentives to the SME (small and medium enterprises) sector and women’s greater participation in the labor force.”

Emirates NBD profit surges on asset sale and forex gains

Updated 9 min 8 sec ago

Emirates NBD profit surges on asset sale and forex gains

  • Dubai’s largest bank reports 80 percent rise in net profit for second quarter

DUBAI: Emirates NBD, Dubai’s largest bank, reported an 80 percent rise in second-quarter net profit helped by the sale of a stake in Network International and strong non-interest income on foreign exchange gains.

The result included a gain of 2.1 billion dirhams ($572 million) from the sale of a stake in digital payment provider Network International in an initial public offering in London in April.

The earnings showed that top banks in the UAE have still withstood strains from a sluggish economy and a property downturn in Dubai.

Second-quarter net profit jumped 80 percent to 4.74 billion dirhams. EFG Hermes had expected a net profit of 4.06 billion in the second quarter.

The bank said net interest income rose 6 percent in the second-quarter from a year earlier, as growth in assets offset a drop in net interest rate margins.

Non-interest income surged 23 percent, helped by gains in foreign exchange income and investment banking activities.

Provisioning for bad debts more than doubled to 656 million dirhams in the second quarter from a year earlier.

The bank said the cost of risk had increased in 2019 to a more normalized level from relatively better credit quality conditions in 2018.

Cost of risk reflects the price a lender pays to manage its risk exposure. In 2018, Emirates NBD signaled that it expected cost of risk to revert to a long-term level of 80-100 basis points from the 63 basis points seen in 2018.

“The increased cost of risk of 82 basis points in H1 2019 is a result of an expectation of a reversion of credit quality to more normalized levels from the benign conditions in 2018, coupled with the expectation of lower write-backs and recoveries,” it said.

Credit-rating agency Moody’s had warned earlier this year provisioning charges for top banks in the UAE will increase in 2019 owing to pressure in the property and the retail sectors.

The Dubai lender said its net profit surged 49 percent in the first half of the year. “Core operating profit advanced 8 percent compared to the first half of 2018, helped by loan growth, higher foreign exchange income and increased investment banking activity,” the bank’s chief executive Shayne Nelson said in a statement.

Nelson said that the bank continued to make progress on the acquisition of Turkey’s Denizbank and expects this transaction to close in the third quarter of 2019.

Emirates NBD said in April that it was buying Denizbank from Russia’s Sberbank at a roughly 20 percent discount to a previously agreed price, after a steep fall in the Turkish lira.