Positive IMF assessment seen as vote of confidence in Saudi reform strategy

The King Abdullah Financial District station highlights the Kingdom’s focus on developing the non-oil economy. (AFP)
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The King Abdullah Financial District station highlights the Kingdom’s focus on developing the non-oil economy. (AFP)
The King Abdullah Financial District highlights the Kingdom’s focus on developing the non-oil economy. (AFP)
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The King Abdullah Financial District highlights the Kingdom’s focus on developing the non-oil economy. (AFP)
Metro lines in Riyadh are also being modernized as part of Vision 2030. (AFP)
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Metro lines in Riyadh are also being modernized as part of Vision 2030. (AFP)
A worker at the Bin Salman farm picks Damascena (Damask) roses to produce rose water and oil, in the western city of Taif, on April 11, 2021. (AFP)
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A worker at the Bin Salman farm picks Damascena (Damask) roses to produce rose water and oil, in the western city of Taif, on April 11, 2021. (AFP)
The IMF report came as an endorsement of  the Kingdom’s plans to diversify its economy and invest in non-oil sectors such as tourism and entertainment. (AFP)
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The IMF report came as an endorsement of the Kingdom’s plans to diversify its economy and invest in non-oil sectors such as tourism and entertainment. (AFP)
 Jeddah's seaside corniche has been extensively redeveloped. (AFP)
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Jeddah's seaside corniche has been extensively redeveloped. (AFP)
The oil sector, far left, has benefited from the Kingdom’s role in rebalancing global markets through OPEC+. (AFP)
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The oil sector, far left, has benefited from the Kingdom’s role in rebalancing global markets through OPEC+. (AFP)
Work on the exterior of the King Abdullah Financial District station of the Riyadh Metro in full swing on April 1, 2021. (AFP)
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Work on the exterior of the King Abdullah Financial District station of the Riyadh Metro in full swing on April 1, 2021. (AFP)
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Updated 10 May 2021

Positive IMF assessment seen as vote of confidence in Saudi reform strategy

Positive IMF assessment seen as vote of confidence in Saudi reform strategy
  • Latest assessment of the Kingdom’s economy is a vindication of Vision 2030 and the pandemic response
  • IMF has the power to deliver a positive or negative verdict on the way the economy is being run

DUBAI: Economic policymakers sometimes feel a little edgy when the International Monetary Fund (IMF) comes to town.

The 77-year-old global financial institution is not a regulator in the strict sense of the word, but it does have the power to deliver a positive or negative verdict on the way those policymakers — ministers, central bankers, and officials — are running their economy.

In extreme circumstances, the IMF can approve or withhold potentially life-saving funds from an economy in crisis. In more normal conditions, its verdict can have a big influence on the international credit ratings all countries use when accessing global capital markets.

When the IMF “mission” finished its visit to Saudi Arabia last month, there must have been at least a sliver of apprehension among economic policymakers in the Kingdom as they awaited the IMF’s formal verdict on their handling of the pandemic and its related economic shocks in 2020.




The oil sector has benefited from the Kingdom’s role in rebalancing global markets through OPEC+. (AFP)

There was no question of resource-rich Saudi Arabia seeking IMF financial assistance, but as the organization had not carried out its usual annual visit in coronavirus-ravaged 2020, there was a lot of ground to cover after a year of radical policy changes to handle the sharp recession that followed the outbreak of the pandemic.

As it turned out, there had been no need for the Saudi officials to worry at all. The “concluding statement”, when it came last week, was a ringing vote of confidence in the way they had handled the huge challenges presented by the pandemic.

More than that, it was a firm endorsement of the Vision 2030 strategy to diversify the Kingdom’s economy away from oil dependency.

Independent economists were not surprised by the IMF’s positivity. Nasser Saidi, former chief economist at the Dubai International Financial Centre (DIFC), told Arab News: “The country has been proactive in rolling out a spate of reforms despite the pandemic and lower oil prices. The public health system has proven to be resilient.”

The IMF experts were categoric. “The authorities responded quickly and decisively to the COVID-19 crisis. Strict early containment and health mitigation measures limited cases and fatalities and the vaccination program has advanced well in recent months,” they said.




The IMF report came as an endorsement of  the Kingdom’s plans to diversify its economy and invest in non-oil sectors such as tourism and entertainment. (AFP)

The experts added: “Fiscal, financial and employment support programs introduced by the government and SAMA helped cushion the impact of the pandemic on businesses and Saudi workers.”

A major reason for this performance, the IMF visitors concluded, lay in the Vision 2030 reform plan that has been in place since 2016, aiming to modernize the Kingdom’s economy and create a more dynamic, entrepreneurial private sector to take the place of government spending as the economic driving force.

“Reforms under Vision 2030 have played a key role in helping the economy navigate the pandemic. Efforts to establish a robust structure of inter-agency coordination and governance, the growing digitalization of government and financial services, reforms to increase labor market mobility, and strong fiscal and financial policy buffers, all equipped the economy to manage the crisis,” the IMF said.

All the indicators are moving in the right direction. Real GDP growth is projected at 2.1 percent this year, representing a dramatic turnaround from the 4.1 percent decline in 2020. In the critical non-oil sector — the key measure of the success of the diversification plan — real GDP growth rebounded in the second half of 2020 and the signs are that this will continue in 2021.

Non-oil growth is projected by the IMF at 3.9 percent this year and 3.6 percent next. Inflation, often a prime concern for the IMF, will be a very manageable 2.8 percent next year, while unemployment — another key indicator for the diversification strategy — fell to 12.6 percent for Saudi nationals at the end of last year.

Moreover, the role Saudi Arabia has played in the OPEC+ cuts strategy to rebalance global markets will pay off this year and next, as oil GDP recovers to 6.8 percent growth next year when oil supply returns to normal at higher crude prices.

The Kingdom’s fiscal policymakers also got a slap on the back from the IMF. “The deficit widened in 2020 to 11.3 percent of GDP (4.5 per cent of GDP in 2019) as oil revenues fell and spending needs increased, and it was comfortably financed by new borrowing and the drawdown of government deposits.” The deficit will decline to 4.2 percent this year, the IMF said, lower than the official forecast.

Some of the controversial measures introduced during the pandemic, like the tripled VAT rate, as well as the removal of cost-of-living allowances and domestic-energy price subsidies, “are all important contributors to the planned fiscal adjustment and should not be reversed or delayed.”

INNUMBERS

3.9% Projected non-oil growth this year.

2.8% Projected inflation rate next year.

The work of the Ministry of Finance was recognized by the IMF. “Steps to continue to strengthen fiscal transparency are needed, including by publishing more detailed information in budget documents and broadening the coverage of fiscal data beyond the central government,” they said.

Mohammed Al-Jadaan, Saudi Arabia’s finance minister, appreciated the IMF’s praise. “Such results have been achieved despite the impact of the COVID-19 pandemic, fluctuations in oil prices, sharp economic fluctuations, declines in global demand, receding growth and other challenges that the Saudi government has risen to,” he said in response.




Saudi Minister of Finance Mohammed al-Jadaan. (AFP)

The IMF included the Kingdom’s financial and capital markets sectors in its praise. “The financial sector continues to be well-regulated and supervised by SAMA,” it said.

“Banks are well-capitalized and liquid despite a decline in profitability and a slight increase in non-performing loans (which remain low) over the past year.”

It added: “The impressive pace of equity and debt market reforms has continued under the guidance of the Capital Market Authority and the National Debt Management Center. These reforms are increasing capital raising options for companies and investment opportunities for savers.”

Saidi, the former DIFC chief economist, said: “Saudi Arabia’s fiscal prudence has to be complimented, in addition to the efficient tapping of debt markets and structuring of key energy infra structuring to finance deficits.”

On one crucial subject — the gradual erosion of Saudi Arabia’s foreign reserves under the impact of pandemic pressures and the need for continued investment in Vision 2030 initiatives — the IMF was sanguine. “The exchange rate peg continues to serve Saudi Arabia well given the current economic structure. SAMA’s foreign exchange reserves remain at very comfortable levels,” it said.




‘Fiscal, financial and employment support programs helped cushion the impact of the pandemic on businesses and Saudi workers.’ (AFP)

There were some caveats from the IMF assessors. “To secure the recovery and spur stronger growth, policymakers need to carefully manage the exit from the remaining COVID-related support and continue the longer-term reform agenda under Vision 2030,” they said.

They also highlighted the need to continue support for the “social security net” to support low-income households which may be struggling from the effect of economic recession compounded by higher tax rates and the withdrawal of cost of living allowances.

“If the recovery stalls, the planned reduction in government capital spending could also be slowed while keeping the medium-term capital spending envelope unchanged,” the IMF said.




The IMF report came as an endorsement of  the Kingdom’s plans to diversify its economy and invest in non-oil sectors such as tourism and entertainment. (AFP)

Above all, it is important to maintain the momentum of economic reform. “Increasing the competitiveness of Saudi workers in the private sector is important to the success of the reform agenda. Developing a competitive and diversified private sector will be difficult unless the wage expectations of Saudi workers are in line with their productivity,” the IMF assessors concluded.

According to Saidi, the pace of continued growth depends on global oil markets and the future pattern of the virus, but the signs are as good as the IMF’s conclusions.

“Saudi Arabia’s growth prospects with continued macroeconomic stability and prudent fiscal stance will encourage increased domestic and foreign investment in addition to housing investment and consumption by households,” he said.

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Twitter: @frankkanedubai


Egypt signs 1.7 billion euros of financing deals with France

Egypt signs 1.7 billion euros of financing deals with France
Updated 9 min 42 sec ago

Egypt signs 1.7 billion euros of financing deals with France

Egypt signs 1.7 billion euros of financing deals with France
  • Of the financing, 776 million euros came from the French government and 990 million euros from AFD
  • The signings came during a visit by French finance minister Bruno Le Maire to Cairo

CAIRO: Egypt has signed 1.7 billion euros ($2.06 billion) worth of deals with France to finance projects in the transportation, infrastructure, electricity and wholesale sectors, the cabinet said on Sunday.
Of that financing, 776 million euros will come from the French government and 990 million euros from AFD, France's development agency, the cabinet said.
The signings came during a visit by French finance minister Bruno Le Maire to Cairo.
In May, France announced a 4 billion euro deal to deliver 30 Dassault warplanes to Egypt beginning in 2024, strengthening ties with what it considers a vital partner in fighting Islamist militants.
Projects announced on Sunday by the cabinet include sanitation stations as well as a number of railway projects, including the provision of 55 new cars for the Cairo metro's oldest line and the construction of a railway line between Aswan in southern Egypt and Wadi Halfa in neighbouring Sudan.
AFD will provide 150 million euros in support of Egypt's universal health insurance programme, the cabinet said. ($1 = 0.8260 euros)


UAE builder Drake & Scull returns to profit in Q1

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Updated 13 June 2021

UAE builder Drake & Scull returns to profit in Q1

UAE builder Drake & Scull returns to profit in Q1
  • This represents a return to profit from a net loss of 30 million dirhams for the same period in 2020, driven by ongoing operations across the region

DUBAI: Dubai contractor Drake & Scull International (DSI) recorded a net profit of 115 million dirhams ($31.3 million) in the first three months of the year.
This represents a return to profit from a net loss of 30 million dirhams for the same period in 2020, driven by ongoing operations across the region, including in countries such as Tunisia, Palestine, Kuwait, and Iraq.
DSI also recorded revenues of 46 million dirhams and the order backlog remained stable at 376 million dirhams, it said in a statement.
Drake & Scull was hit hard by the regional construction downturn since 2014 and has been involved in lengthy financial restructuring and cost cutting.
It signed contracts worth 376 million dirhams earlier this year.


PIF boosts senior management team in expansion drive

PIF boosts senior management team in expansion drive
Updated 13 June 2021

PIF boosts senior management team in expansion drive

PIF boosts senior management team in expansion drive
  • The latest appointments follow the creation of two new deputy governor roles, announced last Tuesday

RIYADH: The Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund, on Sunday announced several new senior appointments, just days after it also created two new deputy governor roles as part of its expansion drive.

The fund announced the appointment of Eyas Al-Dossari and Omar Al-Madhi as senior directors to its MENA investments division, and Abdullah Shaker as senior director to the global capital finance division.

Al-Dossari joins PIF from his position as managing director and head of investment banking for Goldman Sachs Saudi Arabia, where he served since 2017. He also previously worked at HSBC Saudi Arabia and the initial public offering and merger and acquisitions department at the Saudi Capital Market Authority.

Al-Madhi previously held senior positions at Abdul Latif Jameel Investments, Volkswagen Group, McKinsey & Company and Saudi Aramco. He is chairman of the board and executive committee of the Saudi Fisheries Company and is also a member of the board of the National Agricultural Development Company, which are both part of PIF’s portfolio.

Shaker joins PIF from Saudi Al Baraka Banking Group and has almost 25 years’ experience in banking and financial services, having worked for Deloitte, HSBC Saudi Arabia and the Saudi Arabia Capital Market Authority.

The latest appointments follow the creation of two new deputy governor roles, announced last Tuesday.

Turqi Al-Nowaiser, who heads the international investments division, and Yazeed Al-Humied, who leads the MENA investments division, will take on the deputy governor roles alongside their current responsibilities at PIF.

“The latest appointments bolster the PIF leadership team, as it implements its ambitious plans as one of the world’s largest and most impactful investors, with the stated aim of reaching AUM (assets under management) of more than $1.07 trillion, while investing $40 billion annually into the local economy through 2025,” the PIF said in a statement on Sunday.

The fund announced in December 2020 that its total employee count surpassed 1,000, up from about 700 at the start of 2020 and 40 five years ago. It said that about 84 percent of its employees were Saudi citizens and 26 percent were women.

The PIF has grown to $430 billion AUM since 2016 and has invested about $90 billion into the Kingdom’s economy over the last five years, creating more than 331,000 new direct and indirect jobs.


Dubai utility provider to boost clean energy capacity this year

Dubai utility provider to boost clean energy capacity this year
Updated 13 June 2021

Dubai utility provider to boost clean energy capacity this year

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  • The government agency will use photovoltaic solar panels and Concentrated Solar Power (CSP) to achieve a total capacity of 1,614 MWThe government agency will use photovoltaic solar panels and Concentrated Solar Power (CSP) to achieve a total capacity of 1

DUBAI: The Dubai Electricity and Water Authority (DEWA) said it was adding 600 megawatts (MW) of clean energy capacity to the emirate’s power mix this year.

The government agency will use photovoltaic solar panels and Concentrated Solar Power (CSP) to achieve a total capacity of 1,614 MW, it said in a statement.

Half of the additional capacity will be from the 5th phase of the Mohammed bin Rashid Al-Maktoum solar park. The rest will come from a 262-meter CSP tower and a parabolic trough.

Upon delivery of the projects, clean capacity in Dubai’s energy mix will reach around 10 percent in July, and 12 percent by the end of the year.

“This supports the Dubai Clean Energy Strategy 2050, which aims to provide 75 percent of Dubai’s total power capacity from clean energy sources by 2050,” DEWA’s CEO Saeed Mohammed Al-Tayer said.


G7 split on reallocating $100b IMF funds to COVID-hit nations

G7 split on reallocating $100b IMF funds to COVID-hit nations
Updated 13 June 2021

G7 split on reallocating $100b IMF funds to COVID-hit nations

G7 split on reallocating $100b IMF funds to COVID-hit nations
  • Germany and Italy had yet to back the inclusion of the $100 billion figure in the final statement by leaders

CARBIS BAY, England: Group of Seven leaders were trying to resolve differences over a proposal to reallocate $100 billion from the International Monetary Fund’s warchest to help countries struggling to cope with the COVID-19 crisis.
An almost final version of the G7 communique seen by Reuters showed Germany and Italy had yet to back the inclusion of the $100 billion figure in the final statement by leaders.
The IMF’s members agreed in April to a $650 billion increase in IMF’s Special Drawing Rights and the G7 countries are considering whether to reallocate $100 billion of their rights to help poor countries fight the COVID pandemic.
SDRs are the IMF’s reserve asset, and are exchangeable for dollars, euros, sterling, yen and Chinese yuan or renminbi. Member states can loan or donate their SDR reserves to other countries for their use.
The head of the IMF, Kristalina Georgieva, told reporters on the sidelines of the summit that she had been heartened by the G7’s support for the plan and that she expected a clear indication later on how best to proceed, adding that the $100 billion target had been in discussion.