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Samba says Saudi reform broadly on track

30 Jan 2018 12:49 GMT
Samba says Saudi reform broadly on track

London, 30 January (Argus) — Private sector Saudi Arabian bank Samba said the government's economic reform programme is "broadly on track" with fiscal consolidation, expansion of financial sources, and attempts to improve the investment environment.

The potential proceeds of the proposed sale of 5pc of state-owned Aramco, plus additional revenue from the clampdown on corruption, both constitute significant upside risk to the bank's forecasts, it said in its macroeconomic outlook for Saudi Arabia.

Samba assumed a crude price of $60/bl this year and $65/bl next year, rising to $75/bl from 2020. It puts crude production this year at 10.08mn b/d, 10.4mn b/d in 2019, and 10.7mn b/d in 2020.

The fiscal deficit in 2017 was cut to 9pc of gross domestic product (GDP), from 13pc in 2016, largely because of higher oil revenues. But the bank said while higher oil prices accounted for half of the rise in revenues, "of equal importance was the government taking a much larger-than-normal share of oil export earnings — around 86pc compared with 73pc in 2016."

This came despite Aramco's tax rate being cut. Samba said it expects the government to take a smaller share in coming years, given the planned flotation of Aramco, from which it will earn a dividend. The bank said it could not factor the Aramco sale into its forecast because of lack of clarity on the valuation of the company.

It excluded the fiscal impact of the anti-corruption drive because it had no figure for the proceeds when the report was written. But it said if the target $100bn was reached, the sum would be so great as to "account for around 50pc of our projection for the cumulative fiscal deficit from 2018-22." It continued: "All else being equal, the authorities would barely need to tap local or external markets for financing if they could raise this amount from the anti-corruption drive." In fact, Samba said Riyadh is more likely to use the proceeds to boost the PIF sovereign wealth fund.

As the bank's report was issued, the Saudi attorney general's office said some $107bn has been raised, so far.

Samba said the anti-corruption campaign might unsettle investor sentiment in the short term but is a "long-term positive for the economy".

Real GDP shrank by 0.7pc last year but is expected to turn positive to 1.8pc growth this year, 3.1pc next year, and 3.5pc in 2020.