Next year is the year for stimulus.
worth SR5 billion, and a broadband and optical fiber investment worth SR2.56 billion, and measures to invest in high-efficiency air-conditioning units.
Commerce and Investment Minister Majid Al-Qasabi explained in an interview with Bloomberg that the package was part of a SR200 billion, four-year program announced last year to spur the private sector to faster growth and higher rates of job creation.
“Next year is the year for stimulus. That’s how we will strengthen our bonds with local and international investors,” Al-Qasabi said.
Economists have been looking for an upturn in the non-oil sector for some time. Fahad Al-Turki, chief economist with investment bank Jadwa, said: “The government’s efforts to raise non-oil revenue through structured economic reform seems to be bearing fruit … We expect to see a significant ramp-up in government capital spending in the final quarter of 2017.”
The full 2018 budget will be announced in Riyadh next week, with economists expecting further guidance on the progress of the non-oil sector. There was however some skepticism among experts over whether the stimulus package would be enough to significantly affect growth rates, which have fallen to near zero for the overall economy this year, according to the IMF, and are forecast at just 1.1 percent next year.
Monica Malik, chief economist of Abu Dhabi Commercial Bank, told the Financial Times: “Finally seeing signs of the plan is clearly positive. However, the success of the stimulus framework is dependent on how well it integrates private-sector capabilities with the government’s development objectives. A framework that provides funding or support for the private-sector investment would likely not drive a pick-up in activity given the weak domestic backdrop.”
Other analysts have detected some signs of recovery in the non-oil and consumer sector. “Trade data shows that in the three months to September, non-oil imports declined at their slowest pace since late 2015. Data on ATM withdrawals and pointof-sale transactions suggest that the reversal of cuts to civil service bonuses is finally providing some support to consumer spending,” said Jason Tuvey, Middle East economist at London-based Capital Economics.
But he did not necessarily see a significant fiscal boost to the economy from next week’s budget. “Overall, we still expect fiscal policy to be tightened, but there has been a shift, away from spending cuts in the ‘austerity’ phase to revenue-raising measures next year,” he added.
In 2018, government revenue will be boosted by the introduction of value added tax, while expenditure will be reduced by the reduction or elimination of some subsidies.