NTP 2020: 6 strategic aims for Saudi Finance Ministry

Updated 18 June 2016
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NTP 2020: 6 strategic aims for Saudi Finance Ministry

JEDDAH: One of the key aims for Saudi Arabia’s Ministry of Finance is to achieve a balanced budget by 2020 under the National Transformation Program.

The Saudi Cabinet approved the Kingdom’s National Transformation Program (NTP 2020) on June 6, with it ushering in a major new policy era designed to overhaul the economy.
“We estimate the total cost of the NTP to be borne by both the public and private sector will be SR447 billion,” Jadwa Investment stated in a recent report.
It pointed out that the Ministry of Finance (MOF) is in charge of implementing the Kingdom’s fiscal policy, and monitoring its implementation by the relevant agencies.
Aside from preparing the annual budget, the ministry also engages with government agencies and monitors the budget’s implementation.
MoF is also in charge of supervising the collection of government revenue and ensuring compliance with relevant rules and regulations.
Under the NTP, one of the key aims for MoF is to achieve a balanced budget by 2020.
In order to help achieve this, 6 strategic objectives are specified for the ministry. The first strategic objective is to strengthen public financial governance by improving transparency of the fiscal budget. KPIs include improving the Kingdom’s score from 0/100 to 25/100 on the open budget index by 2020. The Open Budget Index is a comparative measure of central government’s budget transparency, focusing specifically on how readily the government provides the public with timely access to comprehensive information contained in the budget.
In order to help achieve this objective, the MoF is targeting more than a two-fold increase in the percentage of government entities applying the Government Finance Statistics (GFS) system, from 30 percent today to 80 percent by 2020.
The GFS system is a specialized macroeconomic statistical framework designed to support fiscal analysis. It provides the economic and statistical reporting principles used in compiling statistics.
Another strategic objective is to increase non-oil revenues from SR163.5 billion in 2015 to SR530 billion by 2020.
This objective implies a cumulative average growth rate of 26.5 percent, compared with 18.3 percent between 2011-2015.
“We see this target being achieved if a collective effort by other government bodies is made, including the Zakat and Tax Authority, Saudi Customs, and other public investment vehicles,” Jadwa researchers added. A third objective is to raise the efficiency of spending on salaries and wages to improve performance productivity, and flexibility of public authorities. The target value of wages and salaries is SR456 billion (40 percent of total spending) by 2020, down from SR480 billion (45 percent of total spending) today. This will result in a reduction in public sector employment, especially when taking together with Ministry of Civil Service’s objectives, a separate government body with its own set of initiatives.
Under the NTP, the Ministry of Civil Service will have to increase the efficiency of salary and compensation expenditure through a 20 percent reduction in the number of civil servants. Another objective for MoF is to achieve sustainability in public debt by improving the Kingdom’s credit rating from an upper medium grade (A1) to a high grade (Aa2) by 2020. The NTP specified a set of initiatives for MoF to be launched in 2016 and aimed to address some or all of the objectives listed above, the reports added.
These include the adoption of tax reforms such as value added taxes on selective goods, minimum tax deductions, fees related to the registration of real estate properties and profits, and applying a new system for Zakat collection.
The aim is to achieve this while the Kingdom takes advantage of its strong fiscal buffers by increasing debt as a percentage of GDP from 7.7 percent today to 30 percent by 2020.


Dubai real estate market recovery to be seen as of 2022: S&P

Updated 20 February 2019
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Dubai real estate market recovery to be seen as of 2022: S&P

  • The outlook on property was part of a challenging assessment of the credit-worthiness of the emirate
  • S&P was generally comfortable with the credit ratings of the emirate’s banking system

DUBAI: S&P Global, the ratings agency, painted a grim picture for the real estate sector in Dubai, with a meaningful recovery in property prices expected only after 2022.
At a presentation to journalists in the Dubai International Financial Center, S&P analyst Sapna Jagtiani said that under the firm’s “base case scenario,” the Dubai real estate market would fall by between 5 and 10 percent this year, roughly the same as the fall in 2018, which would bring property prices to the levels seen at the bottom of the last cycle in 2010, in the aftermath of the global financial crisis.
“On the real estate side we continue to have a very grim view of the market. While we expect prices to broadly stabilize in 2020, we don’t see a meaningful recovery in 2021. Relative to the previous recovery cycle, we believe it will take longer time for prices to display a meaningful recovery,” she said.
S&P’s verdict adds to several recent pessimistic assessments of the Dubai real estate market. Jagtiani said that conditions in the other big UAE property market, in Abu Dhabi, were not as negative, because “Abu Dhabi never did ramp up as much in 2014 and 2015 as Dubai.” S&P does not rate developers in the capital.
She added that a “stress scenario” could arise if government and royal family related developers — such as Emaar Properties, Meraas, Dubai Properties and Nakheel — which have attractive land banks and economies of scale, continue to launch new developments.
“In such a scenario, we think residential real estate prices could decline by 10-15 percent in 2019 and a further 5-10 percent in 2020. In this case, we expect no upside for Dubai residential real estate prices in 2021, as we expect it will take a while for the market to absorb oversupply,” she said.
S&P recently downgraded Damac, one of the biggest Dubai-based developers, to BB- rating, on weak market prospects.
However, Jagtiani said that, despite the “significant oversupply” from existing projects, several factors should held stabilize the market: Few, if any, major product launches; improved affordability and “bargain hunting” by bulk buyers; and a resurgence of Asian, especially Chinese, investor interest in the market.
Jagtiani also said that government measures such as new ownership and visa regulations and reduction in government fees could help prevent prices falling more sharply, as well as “increased economic activity related to Dubai Expo 2020, which is expected to attract about 25 million visitors to the emirate.”
The outlook on property was part of a challenging assessment of the credit-worthiness of the emirate. “In our view, credit conditions deteriorated in Dubai in 2018, reducing the government’s ability to provide extraordinary financial support to its government related entities (GREs) if needed,” S&P said in a report. “The negative outlook on Dubai Electricity and Water
Authority (DEWA) partly reflects our concern that a real estate downturn beyond our base case could out increased pressure on government finances,” the report said.
It pointed out that about 70 percent of government revenues come from non-tax sources, including land transfer and mortgage registration fees, as well as charges for housing and municipality liabilities, as well as dividends from real estate developers it controls, like Emaar and Nakheel.
S&P was generally comfortable with the credit ratings of the emirate’s banking system, which has an estimated 20 percent exposure to real estate. “Banks in the UAE tend to generally display a good level of profitability and capitalization, giving them a good margin to absorb a moderate increase in risks,” the report said.