巴黎银行-新兴市场-宏观策略-沙特预算：着眼于长远-20190801-7页_2mb

Saudi Budget Summary: Take the Long-term View

Core Content

This report provides an analysis of Saudi Arabia's fiscal performance in the second quarter of 2019, focusing on the budget deficit, diversification efforts, and the path towards fiscal sustainability. It also includes market views on interest rate curves and relevant disclosures for regulatory compliance.

Key Messages

• Fiscal Deficit: The Q2 2019 budget showed a deficit of USD8.9 billion, equivalent to around 4.7% of quarterly GDP, following a USD7.4 billion surplus in Q1.
• Deficit Projection: The report maintains the forecast of a fiscal deficit of 7.3% of GDP for 2019, with an expectation of a reduction to 6.5% in 2020 as new revenue measures take effect.
• Spending Growth: Spending increased by 35.2% quarter-over-quarter, outpacing the 6.2% rise in revenue.
• Diversification Impact: While diversification policies have had a positive effect on fiscal accounts (reducing the share of oil revenue from 87.8% in 2014 to 67.9% in 2018), the export structure remains heavily reliant on oil, which still constitutes 78.8% of total proceeds in 2018.
• Expenditure Trends: Capital expenditure (capex) has grown significantly compared to wage growth. Wages accounted for around 49% of total spending in H1 2019, while capex rose to 17% of total spending, up 2 percentage points year-over-year due to a 22% annual increase.

Market View

• Interest Rate Curve: The Saudi Arabian Riyal (SAR) curve is expected to bear-flatten shortly after the FOMC meeting, in line with the US curve. The spread to the USD has tightened since July, and further tightening is anticipated.
• Sustainability: The report suggests a gradual shift towards fiscal sustainability, noting that non-oil revenue as a percentage of total revenue remained at 32% in H1 2019, despite a one-off boost from Aramco's special dividend in Q1. Excluding this boost, non-oil revenue's share is significantly higher.
• Challenges: The budget's return to deficit in Q2 highlights the ongoing challenges in achieving a balanced fiscal position, given the heavy reliance on oil revenue and the significant portion of government spending allocated to socially-sensitive wages.

Key Information

• Fiscal Deficit: Expected to reach 7.3% of GDP in 2019, then decline to 6.5% in 2020.
• Non-oil Revenue: Remains at 32% of total revenue, but the impact of diversification is more pronounced in fiscal accounts than in exports.
• Capex Growth: Capital expenditure has grown faster than wage growth, indicating a strategic shift in spending priorities.
• Oil Revenue Share: Declined from 87.8% in 2014 to 67.9% in 2018, but still dominates at 78.8% of export proceeds in 2018.
• Interest Rates: The SAR curve is expected to flatten further, aligning with the US curve, and the spread to USD has tightened.

Important Disclosures

• This document is non-independent research under MiFID II and is intended for Relevant Persons.
• It may contain Research as defined under MiFID II unbundling rules, and is only available to those who have signed up for BNPP Global Markets Research packages or are out of scope of MiFID II unbundling rules.
• The document is not investment research and should not be relied upon for investment decisions.
• No guarantees: The information and opinions are based on public sources and may not be independently verified. BNPP does not accept responsibility for their accuracy or completeness.
• Confidentiality: The document is for internal use only and may not be reproduced or distributed without prior written consent.
• Legal and Regulatory Compliance: The document is subject to various legal and regulatory disclosures across different jurisdictions (UK, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, Switzerland), emphasizing the need for professional advice and highlighting potential conflicts of interest.

Conclusion

The report underscores the importance of taking a long-term perspective when evaluating Saudi Arabia's fiscal performance. While the budget has returned to deficit in Q2 2019, the ongoing diversification efforts are showing positive signs in the fiscal accounts. The path to fiscal sustainability remains gradual and is influenced by both spending and revenue dynamics. The market view suggests a flattening of the SAR curve, and the report serves as a discussion tool rather than a definitive investment guide.