Drastic change expected in Saudi Arabia’s fiscal program due to COVID-19, oil prices

Drastic change expected in Saudi Arabia’s fiscal program due to COVID-19, oil prices
One of the challenges facing Saudi state budget now is managing the fiscal deficits and how to cover them until reaching a break-even point, says expert. (Shutterstock)
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Updated 04 May 2020

Drastic change expected in Saudi Arabia’s fiscal program due to COVID-19, oil prices

Drastic change expected in Saudi Arabia’s fiscal program due to COVID-19, oil prices
  • Experts suggest budget cuts, privatizations potentially on the cards to help weather storm

RIYADH: A number of economic and finance experts have predicted that the Kingdom’s fiscal balance program will undergo drastic changes and will be more conservative over the medium term to manage the fiscal deficit.

A former International Monetary Fund (IMF) expert, who requested anonymity, told Arab News that international organizations would offer their services to the Kingdom to help it overcome the rare financial crisis resulting from the coronavirus disease (COVID-19) pandemic, coupled with the slump in global oil prices.

The Saudi stock index dropped to 5.7 percent, recording the largest daily loss since March 9, amid government plans to adopt drastic measures to handle the crisis.

The Saudi finance minister, Mohammed Al-Jadaan, said on Saturday that the Kingdom would take draconian measures that might be painful in order to deal with the crisis and pointed out that all options remained open to it.

According to the IMF expert, Al-Jadaan implied moving towards three options for handling the COVID-19 pandemic: Fiscal consolidation, subsidies removal, and increased fees and taxes.

He pointed out that the Kingdom’s public finances were facing multiple challenges amid the fight against COVID-19, including revenue challenges, manifest in the decline in oil revenue by approximately 50 percent due to the collapse in prices.

“The expenditure challenge can be summed up in the increased cost of the health bill. The current expenditure is more than 80 percent and is difficult to lower. So the challenge is fiscal sustainability in the short and medium term, and the final outcome depends on the duration of the COVID-19 crisis” the expert explained.

Mohammed Fahad Alomran, president of the Gulf Center for Financial Consultancy, said Al-Jadaan highlighted the need to rationalize government spending to cope with the anticipated decline in revenue by almost 50 percent. The government will adopt severe austerity measures on less important spending items in the budget with an objective to minimize the anticipated deficit, he said. This will have a negative effect on liquidity in general and, hence, on the valuation of all assets such as public equity, private equity and real estate.

“One of the challenges facing the state budget now is managing the fiscal deficits and how to cover them until reaching a break-even point. This will lead to a fundamental change of the fiscal balance program to be more conservative over the medium term. The options available right now can be deficit financing, government spending cuts and privatization programs,” Alomran said.

Hassan Alwatban, an economic consultant, said one of the challenges facing Saudi Arabia was how to handle the economic crisis and make use of the economic rationalization policies in order to cut down on spending and diversify sources of income.

“The COVID-19 impact will definitely reach the oil prices which will continue to drop as a result on the decrease in crude demand. OPEC+ plays a pivotal role in reducing the losses from oil prices through holding negotiations with OPEC members. This is the only way to reduce the output in the markets and support the crude prices and improve the monetary resources. It is important that the OPEC policies should be followed and adhered to. The advanced countries are the most affected by COVID-19 as their factories have stopped,” he said.

Ahmed A. Al-Jubair, a financial consultant and a member of the Saudi Economic Society, said he believed that the Kingdom’s huge reserves, government assets, the Saudi Sovereign Wealth Fund’s investments and Saudi Aramco would help the Kingdom overcome the challenges of COVID-19 and curb its impact on the local economy, and ensure financial and economic sustainability.

“We have trust in the Kingdom’s financial and economic policies which take into consideration the appropriate solutions for any problems facing the national economy. Saudi Arabia always hedges for such situations by taking preventive measures,” he said.


Dubai’s Emaar to buy out minority shareholders in malls unit

Dubai’s Emaar to buy out minority shareholders in malls unit
Updated 5 min 26 sec ago

Dubai’s Emaar to buy out minority shareholders in malls unit

Dubai’s Emaar to buy out minority shareholders in malls unit
  • Emaar Properties, which already owns close to 85 percent of Emaar Malls, will swap 0.51 of its own shares with shareholders of Emaar Malls

DUBAI: Dubai developer Emaar Properties on Tuesday said it was buying out minority shareholders of its shopping centre unit, less than a decade after floating shares in the company.

The all-share deal comes as both businesses have seen profits plunge over the past year due to the coronavirus pandemic as fewer overseas visitors travel to Dubai.

Emaar Properties, which already owns close to 85 percent of Emaar Malls, will swap 0.51 of its own shares with shareholders of Emaar Malls, the two companies said.

That values Emaar Malls, which operates Dubai’s largest shopping centre, Dubai Mall, at 24 billion dirhams ($6.53 billion), according to Reuters calculations.

Each Emaar Malls share is valued at 1.85 dirhams in the deal, a 10 percent premium based on its last closing price, Reuters calculated.

Emaar Malls, as a wholly owned subsidiary of Emaar Properties, will continue to develop and operate shopping centres and retail assets, the companies said.

Emaar Properties, roughly 30 percent owned by state fund Investment Corp Dubai, will remain listed on the Dubai stock market.

Emaar Properties last month reported a 58 percent fall in 2020 net profit to 2.62 billion dirhams, while Emaar Malls’ yearly net profit dropped 70 percent to 704 million dirhams.

Emaar Properties raised about $1.6 billion listing Emaar Malls in 2014.


Changes in KSA so far just tip of the iceberg, Saudi PIF chief tells the ‘oil man’s Davos’

Changes in KSA so far just tip of the iceberg, Saudi PIF chief tells the ‘oil man’s Davos’
Updated 03 March 2021

Changes in KSA so far just tip of the iceberg, Saudi PIF chief tells the ‘oil man’s Davos’

Changes in KSA so far just tip of the iceberg, Saudi PIF chief tells the ‘oil man’s Davos’

DUBAI: Changes in Saudi Arabia in the past five years are just the “tip of the iceberg” of the transformation the Kingdom will experience under the Vision 2030 strategy and beyond, Yasir Al-Rumayyan, governor of the Public Investment Fund, said on Tuesday.
“The things we’d like to achieve in 2030 will be our optimal way of starting the next phase, which is what we will do until 2040, or after that to 2050,” Al-Rumayyan told a virtual session of CERAWeek — the “oil man’s Davos” — in Houston, Texas.
“Our society is changing, the people are becoming more receptive to new ideas on how companies should work and how society should function, and even the social contract is changing. If you add all of these together, you will have an idea of what Saudi Arabia, by embracing and implementing Vision 2030, will look like in nine years,” he said.
Al-Rumayyan, who is also chairman of Saudi Aramco, said plans remained in place to sell more shares in the world’s biggest oil company, after the biggest initial public offering (IPO) in history in 2019 when it sold less than 2 percent of its shares.
“From the very beginning we said we would be selling more of the shares owned by the government; once we see market conditions improving, and more appetite from different investment institutions and investors, we will definitely consider selling more shares,” he said.
He also underlined the Kingdom’s ambitions in renewable energy and hydrogen fuels. “Aramco is interested in renewables, believe it or not. It is the largest oil and gas company on the planet, but we are thinking of ourselves as an energy and petrochemical company.”
He told Daniel Yergin, the Pulitzer prize-winning oil historian, that PIF would invest $40 billion a year in Saudi Arabia to “stimulate the economy and
create jobs.”
 


Saudi forum to showcase key projects

Saudi forum to showcase key projects
Updated 03 March 2021

Saudi forum to showcase key projects

Saudi forum to showcase key projects
  • The Future Projects Forum aims to showcase future projects in the Middle East

Saudi Contractors Authority (SCA) will hold the Future Projects Forum (FPF) virtually during March 22-24.

The FPF will include the participation of more than 37 government and private  entities to present around 1,000 projects with an estimated total value exceeding SR600 billion ($16 billion).

The Future Projects Forum aims to showcase future projects in the Middle East. It also aims to create opportunities for contractors and investors via identifying details of future projects in the contracting sector and knowing the mechanism of qualification and competition.

The forum seeks to develop a wide network of relationships between contractors, investors and interested parties, in addition to creating partnerships between them.

 The number of delivered residential real estate projects increased from SR12.4 billion ($3.3 billion) in 2019 to SR13.9 billion in 2020.


Bahrain expects $3.2bn deficit in 2021, 5% economic growth

Bahrain expects $3.2bn deficit in 2021, 5% economic growth
Updated 03 March 2021

Bahrain expects $3.2bn deficit in 2021, 5% economic growth

Bahrain expects $3.2bn deficit in 2021, 5% economic growth
  • Bahrain’s economy contracted by 5.4% last year, the IMF estimated, as the COVID-19 pandemic hurt vital sectors such as energy and tourism
  • The tiny Gulf state, which based the 2021-2022 budget on an oil price assumption of $50 a barrel, expects the economy to grow 5% this year

DUBAI: Bahrain expects to post a deficit of 1.2 billion dinars ($3.20 billion) in 2021, state news agency BNA said, citing the finance ministry.
The oil-producing Gulf state projected a budget of 3.6 billion dinars for 2021 with revenues expected to amount to 2.4 billion dinars, BNA said.
For next year, total expenditure is estimated at 3.57 billion dinars, against total revenues of 2.46 billion dinars, resulting in a slightly lower deficit of 1.1 billion dinars.
Bahrain’s economy contracted by 5.4% last year, the International Monetary Fund (IMF) has estimated, as the COVID-19 pandemic hurt vital sectors such as energy and tourism.
The tiny Gulf state, which based the 2021-2022 budget on an oil price assumption of $50 a barrel, expects the economy to grow 5% this year, BNA said late on Tuesday.
Sovereign wealth fund Mumtalakat will double its contributions to government revenues, said the agency, as Bahrain seeks to boost non-oil revenues.
Bahrain has accumulated a large pile of debt since the 2014-2015 oil price shock. In 2018 it received a $10 billion financial aid program from Gulf allies that helped it avoid a credit crunch.
BNA cited Finance and Economy Minister Sheikh Salman bin Khalifa Al-Khalifa as saying that the country remains committed to achieving the objectives of the fiscal balance program — a set of fiscal reforms linked to the financial aid.
“This budget makes clear Bahrain’s continued commitment to the Fiscal Balance Program, despite the unprecedented challenges of COVID-19, with core government expenditure remaining under tight control,” the minister was quoted as saying.
Public debt rose to 133% of GDP last year from 102% in 2019, the IMF has said, cautioning that the country needs to reduce government debt once economic recovery from the coronavirus crisis firms up.


Theeb Rent-a-Car to list 30% of shares in IPO this month

Theeb Rent-a-Car to list 30% of shares in IPO this month
Updated 03 March 2021

Theeb Rent-a-Car to list 30% of shares in IPO this month

Theeb Rent-a-Car to list 30% of shares in IPO this month

RIYADH: Theeb Rent-a-Car, a Riyadh-based car rental company, plans to float 30 percent of its share capital in an initial public offering (IPO) later this month.

The company issued an IPO prospectus last month to the Saudi Stock Exchange (Tadawul), in which it outlined the many factors that enable it to compete with its current and potential competitors and the factors it sees for its future growth.

The Saudi Capital Market Authority (CMA) last October approved Theeb’s request to offer a 30 percent stake as part of its IPO, representing 12.90 million shares on Tadawul.

The company’s strategy is to continue seeking growth in the car rental services sector by opening new branches, whether at airports, inside cities, or in new mega projects in which the need for car rental is likely to increase.

According to Argaam, Theeb Rent a Car reported a net profit of SR41.9 million ($3.97 million) for the first nine months of 2020, an increase of 8 percent on the same period in 2019.

Short-term leasing accounted for 44.8 percent of revenue, followed by long-term leasing (30.2 percent) and used car sales (25 percent).

Offering daily, weekly and monthly rental services, it operates through 48 outlets across the Kingdom. With 264,131 customers as of March 2020 – a 3 percent year-on-year increase – Theeb has an 8.8 percent share of the short-term car leasing market. It competes with the likes of Al WAFAQ, with a 6.9 percent market share, followed by Budget Saudi (6.9 percent), Arabian Hala (4.6 percent), Key Car Rental (3.5 percent) and SEERA (3.2 percent).